Spillover Effects of Sovereign Bond Purchases in the Euro Area

40 Pages Posted: 19 Jan 2021

See all articles by Yvo Mudde

Yvo Mudde

De Nederlandsche Bank

Anna SamarIna

De Nederlandsche Bank

Robert Vermeulen

De Nederlandsche Bank

Date Written: January 18, 2021

Abstract

This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.

Keywords: Public Sector Purchase Programme, euro area, spillovers, government bonds

JEL Classification: E52, E58, G12

Suggested Citation

Mudde, Yvo and SamarIna, Anna and Vermeulen, Robert, Spillover Effects of Sovereign Bond Purchases in the Euro Area (January 18, 2021). De Nederlandsche Bank Working Paper No. 706, Available at SSRN: https://ssrn.com/abstract=3769100 or http://dx.doi.org/10.2139/ssrn.3769100

Yvo Mudde

De Nederlandsche Bank ( email )

Netherlands

Anna SamarIna (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Robert Vermeulen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

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