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Flash crashes on sovereign bond markets – EU evidence

Author

Listed:
  • Antoine Bouveret

    (European Securities and Markets Authority)

  • Martin Haferkorn

    (European Securities and Markets Authority)

  • Gaetano Marseglia

    (Bank of Italy)

  • Onofrio Panzarino

    (Bank of Italy)

Abstract

The development of electronic and automated trading in sovereign bond markets has been accompanied by a more frequent occurrence of flash crashes, i.e. episodes of sudden and abrupt price changes that are to a large extent reversed shortly afterwards. We focus our analysis on two flash events in the German and Italian bond markets and show how liquidity vanished ahead of the crashes, resulting in trades having a large price impact on prices. We document that, during the flash event of 29 May 2018, activity on Italian bonds futures and cash markets diverged: trading activity in futures surged, while it plummeted on the cash market. In addition, we show that the effects of flash events on the liquidity in the affected markets can last up to several weeks. Our findings call for increased monitoring of electronic trading markets, taking into account the pace of financial innovation, and for pursuing more integrated approaches in the presence of highly interlinked markets.

Suggested Citation

  • Antoine Bouveret & Martin Haferkorn & Gaetano Marseglia & Onofrio Panzarino, 2022. "Flash crashes on sovereign bond markets – EU evidence," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 20, Bank of Italy, Directorate General for Markets and Payment System.
    • Handle: RePEc:bdi:wpmisp:mip_020_22
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    File URL: https://www.bancaditalia.it/pubblicazioni/mercati-infrastrutture-e-sistemi-di-pagamento/approfondimenti/2022-020/N.20-MISP.pdf
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    References listed on IDEAS

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    Cited by:

    1. Scheicher, Martin, 2023. "Intermediation in US and EU bond and swap markets: stylised facts, trends and impact of the coronavirus (COVID-19) crisis in March 2020," ESRB Occasional Paper Series 24, European Systemic Risk Board.

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    More about this item

    Keywords

    Market liquidity; flash crash; sovereign bonds.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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