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The effect of Eurosystem asset purchase programmes on euro area sovereign bond yields during the COVID-19 pandemic


  • George Hondroyiannis

    (Bank of Greece and Harokopio University)

  • Dimitrios Papaoikonomou

    (Bank of Greece)


We investigate the effect of Eurosystem Asset Purchase Programmes (APP) on the monthly yields of 10-year sovereign bonds for 11 euro area sovereigns during January-December 2020. The analysis is based on time-varying coefficient methods applied to monthly panel data covering the period 2004m09 to 2020m12. During 2020 APP contributed to an average decline in yields estimated in the range of 58-76 bps. In December 2020 the effect per EUR trillion ranged between 34 bps in Germany and 159 bps in Greece. Stronger effects generally display diminishing returns. Our findings suggest that a sharp decline in the size of the APP in the aftermath of the COVID-19 crisis could lead to very sharp increases in bond yields, particularly in peripheral countries. The analysis additionally reveals a differential response to global risks between core and peripheral countries, with the former enjoying safe-haven benefits. Markets’ perceptions of risk are found to be significantly affected by credit ratings, which is in line with recent evidence based on constant parameter methods.

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  • George Hondroyiannis & Dimitrios Papaoikonomou, 2021. "The effect of Eurosystem asset purchase programmes on euro area sovereign bond yields during the COVID-19 pandemic," Working Papers 291, Bank of Greece.
  • Handle: RePEc:bog:wpaper:291

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    References listed on IDEAS

    1. Daniel Monteiro & Borek Vasicek, 2019. "A retrospective look at sovereign bond dynamics in the euro area," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 17(4), pages 7-26, March.
    2. Paniagua, Jordi & Sapena, Juan & Tamarit, Cecilio, 2017. "Sovereign debt spreads in EMU: The time-varying role of fundamentals and market distrust," Journal of Financial Stability, Elsevier, vol. 33(C), pages 187-206.
    3. Bernoth, Kerstin & Erdogan, Burcu, 2012. "Sovereign bond yield spreads: A time-varying coefficient approach," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 639-656.
    4. Dimitris Malliaropulos & Petros Migiakis, 2018. "Quantitative easing and sovereign bond yields: a global perspective," Working Papers 253, Bank of Greece.
    5. Corradin, Stefano & Grimm, Niklas & Schwaab, Bernd, 2021. "Euro area sovereign bond risk premia during the Covid-19 pandemic," Working Paper Series 2561, European Central Bank.
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    Cited by:

    1. Broeders, Dirk & de Haan, Leo & Willem van den End, Jan, 2023. "How quantitative easing changes the nature of sovereign risk," Journal of International Money and Finance, Elsevier, vol. 137(C).
    2. Jan Kakes & Jan Willem van den End, 2023. "Identifying financial fragmentation: do sovereign spreads in the EMU reflect differences in fundamentals?," Working Papers 778, DNB.
    3. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2022. "COVID-19, Economic Policies and Public Debt Sustainability in Italy," Sustainability, MDPI, vol. 14(8), pages 1-20, April.
    4. Enrique Alberola-Ila & Gong Cheng & Andrea Consiglio & Stavros A. Zenios, 2022. "Debt sustainability and monetary policy: the case of ECB asset purchases," BIS Working Papers 1034, Bank for International Settlements.

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    More about this item


    Euro area; asset purchase programmes; sovereign bond yields; time-varying parameters.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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