Liquidity in Government Versus Covered Bond Markets

29 Pages Posted: 21 Dec 2012

See all articles by Jens Dick-Nielsen

Jens Dick-Nielsen

Copenhagen Business School - Department of Finance

Jacob Gyntelberg

Nordea Group; University of Copenhagen - Department of Economics

Thomas Sangill

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2012

Abstract

We present findings on the secondary market liquidity of government and covered bonds in Denmark before, during and after the 2008 financial crisis. The analysis focuses on wholesale trading in the two markets and is based on a complete transaction level dataset covering November 2007 until end 2011. Overall, our findings suggest that Danish benchmark covered bonds by and large are as liquid as Danish government bonds - including in periods of market stress. Before the financial crisis of 2008, government bonds were slightly more liquid than covered bonds. During the crisis, trading continued in both markets but the government bond market experienced a brief but pronounced decline in market liquidity while liquidity in the covered bond market was more robust - partly reflective of a number of events as well as policy measures introduced in the autumn of 2008. After the crisis, liquidity in the government bond market quickly rebounded and government bonds again became slightly more liquid than covered bonds.

Keywords: Bond Market Liquidity, Government Bonds, Covered Bonds, Price Impact

JEL Classification: E43, G12, G21

Suggested Citation

Dick-Nielsen, Jens and Gyntelberg, Jacob and Sangill, Thomas, Liquidity in Government Versus Covered Bond Markets (November 19, 2012). BIS Working Paper No. 392. Available at SSRN: https://ssrn.com/abstract=2191571 or http://dx.doi.org/10.2139/ssrn.2191571

Jens Dick-Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

Jacob Gyntelberg

Nordea Group ( email )

Grønjordsvej 10
Copenhagen, DK - 2300
Denmark

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

Thomas Sangill

affiliation not provided to SSRN

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