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The Euro-Area Government Securities Markets. Recent Developments and Implications for Market Functioning

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  • Roberto Blanco

    (Banco de España)

Abstract

This paper analyses recent key developments in euro-area government bond markets and their main implications for central banks and for market functioning. The introduction of the euro is found to have significantly affected the relative pricing of securities. The spreads over German bonds of previously high-yield debt have narrowed significantly whereas the spreads of all other euro-area sovereign debt have widened following the introduction of the euro. Market microstructure factors, such as relative market liquidity and the cheapest-to-deliver status of bonds, are also found to play a part in determining relative prices in addition to differences in credit risk. Finally, the evidence suggests that the reduction in the relative supply of government bonds has hitherto had a limited effect in the euro area, in contrast to the evidence in the US market.

Suggested Citation

  • Roberto Blanco, 2001. "The Euro-Area Government Securities Markets. Recent Developments and Implications for Market Functioning," Working Papers 0120, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0120
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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/01/Fic/dt0120e.pdf
    File Function: First version, 2001
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    References listed on IDEAS

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    Cited by:

    1. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2014. "Causality and contagion in EMU sovereign debt markets," International Review of Economics & Finance, Elsevier, pages 12-27.
    2. Singh, Manish K. & Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2015. "Bank risk behavior and connectedness in EMU countries," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 161-184.
    3. Bernoth, Kerstin & von Hagen, Jürgen & Schuknecht, Ludger, 2012. "Sovereign risk premiums in the European government bond market," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 975-995.
    4. Gómez-Puig, Marta, 2008. "Monetary integration and the cost of borrowing," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 455-479, April.
    5. S. Sosvilla-Rivero & R. Maroto-Illera, 2003. "Regimen changes and duration in the European Monetary System," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1923-1933.
    6. Faruk Balli, 2009. "Spillover effects on government bond yields in euro zone. Does full financial integration exist in European government bond markets?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(4), pages 331-363, October.
    7. Gómez-Puig, Marta & Sosvilla-Rivero, Simón & Ramos-Herrera, María del Carmen, 2014. "An update on EMU sovereign yield spread drivers in times of crisis: A panel data analysis," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 133-153.
    8. Gomez-Puig, Marta, 2006. "Size matters for liquidity: Evidence from EMU sovereign yield spreads," Economics Letters, Elsevier, vol. 90(2), pages 156-162, February.
    9. Dunne, Peter & Moore, Michael J & Portes, Richard, 2002. "Defining Benchmark Status: An Application using Euro-Area Bonds," CEPR Discussion Papers 3490, C.E.P.R. Discussion Papers.

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