Overcrowding Versus Liquidity in the Euro Sovereign Bond Markets

27 Pages Posted: 20 Feb 2012

See all articles by Andrea Coppola

Andrea Coppola

World Bank; University of Rome Tor Vergata - Department of Economics and Law; Ministry of Economy and Finance, Italy

Alessandro Girardi

Independent

Gustavo Piga

University of Rome

Date Written: February 20, 2012

Abstract

With the adoption of a common currency the degree of substitution between financial instruments supplied by EMU Member States to finance their national debts has risen. Providing the market for euro-denominated government securities with a large volume of similar financial instruments is likely to increase liquidity and lower yields. By contrast, providing an excessive volume of the same instrument might increase the return demanded by investors. This paper aims at empirically assessing the balance between liquidity and overcrowding effects by EMU countries’ issuance plans. Our results document a significant relationship between bunching in issues and bond yields.

Keywords: EMU, government bond yields, liquidity, issuance calendars

JEL Classification: H63, H69

Suggested Citation

Coppola, Andrea and Girardi, Alessandro and Piga, Gustavo, Overcrowding Versus Liquidity in the Euro Sovereign Bond Markets (February 20, 2012). CEIS Working Paper No. 222. Available at SSRN: https://ssrn.com/abstract=2008166 or http://dx.doi.org/10.2139/ssrn.2008166

Andrea Coppola

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

University of Rome Tor Vergata - Department of Economics and Law ( email )

Rome, I-00133

Ministry of Economy and Finance, Italy ( email )

Via XX Settembre 97
Rome, Rome 00187
Italy

Alessandro Girardi

Independent ( email )

No Address Available

Gustavo Piga (Contact Author)

University of Rome ( email )

Via di Tor Vergata
Rome, Lazio
Italy

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