Demand Shocks for Public Debt in the Eurozone

51 Pages Posted: 6 Mar 2020

See all articles by Andras Lengyel

Andras Lengyel

University of Amsterdam - Faculty of Economics and Business (FEB)

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: March 2, 2020

Abstract

In this paper we use high-frequency (intraday) government bond futures price changes around German and Italian Treasury auctions to identify unexpected shifts in the demand for public debt. Estimates show that positive demand shocks lead to large and persistent negative movements in Treasury yields. There is also evidence of significant spillover effects into Treasury bond, equity and corporate bond markets of other euro area countries. We find interesting differences in the effects of demands shocks between the two countries, which are consistent with the “safe-haven” status of German bonds versus the “high-debt” status of Italian Treasuries. Results also suggest that these effects are stronger during periods of high financial stress.

Keywords: Sovereign bonds, Primary market, High-frequency identification, Yield curve

JEL Classification: F4, E43, G15

Suggested Citation

Lengyel, Andras and Giuliodori, Massimo, Demand Shocks for Public Debt in the Eurozone (March 2, 2020). De Nederlandsche Bank Working Paper No. 674 (2020), Available at SSRN: https://ssrn.com/abstract=3548059 or http://dx.doi.org/10.2139/ssrn.3548059

Andras Lengyel (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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