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How Safe Was the 'Safe Haven'? Financial Market Liquidity During the 1998 Turbulences

Christian Upper

Bank for International Settlements (BIS)

February 2000

Deutsche Bundesbank Working Paper No. 1/00

The secondary market for four German benchmark government bonds experienced a notable reduction in liquidity in the wake of the Russian devaluation on August 17th, 1998 as well as a surge in the volatility of yields and a widening in the yield spread between the individual bonds. The increase in the cost of trading, as measured by the effective spread, cannot be explained by surprises in trading volume, which indicates that private information did not play a major role during this episode. The fact that the market was able to handle a statistically significantly higher than usual number of transactions and turnover. In this sense, liquidity provision has been remarkably effective in dealing with the turbulences.

Number of Pages in PDF File: 49

JEL Classification: G14

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Date posted: July 26, 2000  

Suggested Citation

Upper, Christian, How Safe Was the 'Safe Haven'? Financial Market Liquidity During the 1998 Turbulences (February 2000). Deutsche Bundesbank Working Paper No. 1/00. Available at SSRN: https://ssrn.com/abstract=219132 or http://dx.doi.org/10.2139/ssrn.219132

Contact Information

Christian Upper (Contact Author)
Bank for International Settlements (BIS) ( email )
Centralbahnplatz 2
Basel, Basel-Stadt 4002
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