Unconventional Monetary Policy and Auction Cycles of Eurozone Sovereign Debt

Abstract

We provide evidence that the ECB’s unconventional monetary policy dampens yield cycles in secondary Eurozone sovereign debt markets around new sovereign debt auctions. This effect increases in market volatility. Cycles caused by domestic auctions and the role of market volatility are largest for countries with low credit ratings. Auctions by these countries generate highly-significant auction cycles in other countries. Auction cycles can have a non-negligible effect on debt-servicing costs, but these may be contained by concentrating debt issuance in tranquil periods, and by coordinating auction calendars among countries, so as to maximize the dispersion of auction activity in time.

Keywords: auction cycles, sovereign debt, asset purchase programs, primary market, secondary market, market volatility

JEL Classification: E43, G12, G18, G15