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Spillover Effects of Sovereign Bond Purchases in the Euro Area

Author

Listed:
  • Yvo Mudde

    (De Nederlandsche Bank)

  • Anna Samarina

    (De Nederlandsche Bank and University of Groningen)

  • Robert Vermeulen

    (De Nederlandsche Bank)

Abstract

This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Program (PSPP) on euro area government bond returns. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015–December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for arbitrage within euro area sovereign bond markets. These spillover effects are particularly large for longer-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher-yielding government bonds.

Suggested Citation

  • Yvo Mudde & Anna Samarina & Robert Vermeulen, 2024. "Spillover Effects of Sovereign Bond Purchases in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 20(2), pages 343-389, April.
    • Handle: RePEc:ijc:ijcjou:y:2024:q:2:a:8
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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