Dealer Inventory and the Linkage between Primary and Secondary Markets for Eurozone Sovereign Debt

53 Pages Posted: 21 Aug 2019

See all articles by Alexander Eisl

Alexander Eisl

Vienna University of Economics and Business

Christian Ochs

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics

Nikolay Osadchiy

Emory University - Goizueta Business School

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Date Written: August 18, 2019

Abstract

We study the impact of sovereign bond auctions on secondary markets and their feedback to the sovereigns’ debt cost. This linkage is established through the actions of primary dealers, participating in the auctions, and also acting as market-makers. We model financially-constrained primary dealers who buy newly issued bonds and manage their inventory, while maintaining market liquidity. We find empirical support for our model and its resulting hypotheses: primary dealers tend to liquidate more liquid and more risky bonds from their inventory in order to be able to participate in sovereign bond auctions and minimize the impact of their portfolios.

Keywords: Eurozone; Dealer Inventory, Sovereign Bond Markets

JEL Classification: G12, G15, G18, G21, H63

Suggested Citation

Eisl, Alexander and Ochs, Christian and Osadchiy, Nikolay and Subrahmanyam, Marti G., Dealer Inventory and the Linkage between Primary and Secondary Markets for Eurozone Sovereign Debt (August 18, 2019). Available at SSRN: https://ssrn.com/abstract=3439096 or http://dx.doi.org/10.2139/ssrn.3439096

Alexander Eisl

Vienna University of Economics and Business ( email )

Heiligenstadter-Strasse 46-48
Vienna, Wien A-1190
Austria

Christian Ochs (Contact Author)

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Nikolay Osadchiy

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.bus.emory.edu/nosadch/

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

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