Trading European Sovereign Bonds: The Microstructure of the MTS Trading Platforms
Yiu Chung Cheung
Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
Bocconi University - Department of Finance
Frank De Jong
Tilburg University - Department of Finance
CEPR Discussion Paper No. 4285
We study the microstructure of the MTS Global Market bond trading system. This system is the largest pan-European interdealer trading system for Eurozone government bonds. We study the volume weighted quoted spread and a variety of effective spread measures for different classes of bond maturities and issuing countries. We find that quoted and effective spreads are related to maturity and trading intensity. Estimated spreads on EuroMTS are typically slightly higher than on the domestic markets, but the difference is small in economic terms. The regression results show that order flow plays a key role in determining the price discovery in the bond market. Transitory costs are more important in markets like Italy and Belgium, which are dominated by local traders. In addition, we find a positive relationship between trading intensity and price returns, indicating findings relevant to the structure of bond markets and interdealer trading.
Number of Pages in PDF File: 50
Keywords: Bonds markets, microstructure, order flow
JEL Classification: C32, F31working papers series
Date posted: April 6, 2004
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