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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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  • 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. Fleming, Michael & Nguyen, Giang & Rosenberg, Joshua, 2024. "How do Treasury dealers manage their positions?," Journal of Financial Economics, Elsevier, vol. 158(C).
    2. Sigaux, Jean-David, 2024. "Trading ahead of treasury auctions," Journal of Banking & Finance, Elsevier, vol. 158(C).
    3. Klingler, Sven & Sundaresan, Suresh, 2023. "Diminishing treasury convenience premiums: Effects of dealers’ excess demand and balance sheet constraints," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 55-69.
    4. Szkup, Michal, 2017. "Preventing Self-fulfilling debt crises," MPRA Paper 82754, University Library of Munich, Germany.
    5. Sigaux, Jean-David, 2018. "Trading ahead of treasury auctions," Working Paper Series 2208, European Central Bank.
    6. 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.
    7. 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).
    8. 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.
    9. J.J.M. Van Spronsen & R.M.W.J. Beetsma, 2022. "Unconventional Monetary Policy and Auction Cycles of Eurozone Sovereign Debt," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 169-202, February.
    10. Lin, Zhongguo & Hamill, Philip A. & Li, Youwei & Sun, Zhuowei & Waterworth, James, 2020. "How did order-flow impact bond prices during the European Sovereign Debt Crisis?," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 13-24.
    11. Amin, Shehryar & Tédongap, Roméo, 2023. "The changing landscape of treasury auctions," Journal of Banking & Finance, Elsevier, vol. 148(C).
    12. Andras Lengyel & Massimo Giuliodori, 2022. "Demand Shocks for Public Debt in the Eurozone," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 1997-2028, October.
    13. Raffaele Doronzo & Vittorio Siracusa & Stefano Antonelli, 2021. "Green Bonds: the Sovereign Issuers' Perspective," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 3, Bank of Italy, Directorate General for Markets and Payment System.
    14. Shida, Jakob, 2023. "Primary market demand for German government bonds," Journal of International Money and Finance, Elsevier, vol. 137(C).
    15. 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.
    16. Albuquerque, Rui & Costa, José & Faias, Jose, 2022. "Price elasticity of demand and risk-bearing capacity in sovereign bond auctions," CEPR Discussion Papers 17095, C.E.P.R. Discussion Papers.
    17. 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.
    18. Ferrara, Federico Maria, 2024. "Central bank asset purchases and auction cycles revisited: new evidence from the euro area," Working Paper Series 2927, European Central Bank.
    19. Fuhrer, Lucas Marc & Giese, Julia, 2021. "Gilt auctions and secondary market dynamics," Finance Research Letters, Elsevier, vol. 38(C).
    20. 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.
    21. 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.
    22. Mikhail V. Zharikov, 2022. "The Model of a Shared Interest Rate for a Group of Countries to Circulate a Digital Currency: Featuring the BRICS," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(2), pages 187-208.
    23. 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.
    24. Helwege, Jean & Wang, Liying, 2021. "Liquidity and price pressure in the corporate bond market: evidence from mega-bonds," Journal of Financial Intermediation, Elsevier, vol. 48(C).

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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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