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Price effects of sovereign debt auctions in the Euro-zone : The role of the crisis

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  • Beetsma, R.M.W.J.
  • Giuliodori, M.
  • de Jong, F.C.J.M.

    (Tilburg University, School of Economics and Management)

  • Widijanto, D.

Abstract

Exploring the period since the inception of the euro, we show that secondary-market yields on Italian public debt increase in anticipation of auctions of new issues and decrease after the auction, while no or a smaller such effect is present for German public debt. However, these yield movements on the Italian debt are largely confined to the period of the crisis since mid-2007. We also find that there is some tendency of the yield movements to be larger when the demand for the new issue is smaller relative to its supply. Our results are consistent with a framework in which a small group of primary dealers require compensation for inventory risk and this compensation needs to be higher when market uncertainty is larger. We also find that the secondary-market behaviour of series with a maturity close to the auctioned series, but for which there is no auction, is very similar to the secondary-market behaviour of the auctioned series. These findings support an explanation of yield movements based on the behaviour of primary dealers with limited risk-bearing capacity.
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Suggested Citation

  • Beetsma, R.M.W.J. & Giuliodori, M. & de Jong, F.C.J.M. & Widijanto, D., 2014. "Price effects of sovereign debt auctions in the Euro-zone : The role of the crisis," Other publications TiSEM 8e7aa91b-fe20-460e-9ff2-e, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:8e7aa91b-fe20-460e-9ff2-e5f4750e920a
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    Cited by:

    1. Szkup, Michal, 2017. "Preventing Self-fulfilling debt crises," MPRA Paper 82754, University Library of Munich, Germany.
    2. Sigaux, Jean-David, 2018. "Trading ahead of treasury auctions," Working Paper Series 2208, European Central Bank.
    3. Corradin, Stefano & Maddaloni, Angela, 2020. "The importance of being special: Repo markets during the crisis," Journal of Financial Economics, Elsevier, vol. 137(2), pages 392-429.
    4. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2021. "The maturity of sovereign debt issuance in the euro area," Journal of International Money and Finance, Elsevier, vol. 110(C).
    5. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2018. "Bid-to-cover and yield changes around public debt auctions in the euro area," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 118-134.
    6. Andras Lengyel & Massimo Giuliodori, 2020. "Demand shocks for public debt in the Eurozone," DNB Working Papers 674, Netherlands Central Bank, Research Department.
    7. Beetsma, Roel & de Jong, Frank & Giuliodori, Massimo & Hanson, Jesper, 2016. "Domestic and Cross-Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area," CEPR Discussion Papers 11122, C.E.P.R. Discussion Papers.
    8. Francisco Alvarez & Cristina Mazon, 2019. "Overpricing in Spanish Treasury Auctions," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 199-220, May.
    9. Fuhrer, Lucas Marc & Giese, Julia, 2021. "Gilt auctions and secondary market dynamics," Finance Research Letters, Elsevier, vol. 38(C).
    10. Roel Beetsma & Massimo Giuliodori & Jesper Hanson & Frank De Jong, 2018. "Cross‐Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1401-1440, October.
    11. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2020. "Determinants of the bid-to-cover ratio in Eurozone sovereign debt auctions," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 96-120.
    12. Cafiso, Gianluca, 2019. "Sovereign bond markets when auctions take place: Evidence from Italy," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 406-430.

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    JEL classification:

    • 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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