Liquidity and the Cost of Funds in the European Treasury Bills Market
Centre for Economic Policy Research (CEPR)
University of Toulouse 1
University of Toulouse I - GREMAQ-IDEI; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
We analyze empirically the determinants of Eurozone Treasury bills yields. Market microstructure as well as macroeconomic variables are found to significantly impact yields. Secondary trading in a centralized transparent electronic limit order book enhances liquidity and thus reduce yields. Irregularly issuing securities raises the yields government must pay. Consistent with the flight to quality hypothesis, yields are lower when the stock market is volatile. In such periods, the value of liquidity is found to be particularly high. Finally, yields are found to be greater when governments are more indebted.
Number of Pages in PDF File: 28
Keywords: Liquidity, market microstructure, volatility, treasury bills, treasury auctions, yield spread, flight to quality, eurozone
JEL Classification: E43, E44, F36, G15working papers series
Date posted: April 11, 2005
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