Sovereign Eurobond Liquidity and Yields

Abstract

Market liquidity is of value to both investors and issuers of securities, and is therefore a crucial factor in asset pricing. For the important asset class of Eurobonds, significant feedback from liquidity to pricing is established, and it is shown that bid-ask spreads (a proxy for market liquidity) and yields are closely related to bond characteristics such as issue volume, time to maturity, the inclusion of collective action clauses, and the jurisdiction of issuance. Debt management offices can choose these characteristics in a way that has economically significant and persistent effects on both liquidity and pricing.

Keywords: Eurobond yields, bid-ask spread, liquidity, debt management, instrument design, Log yield determinant, Eurobond liquidity, market liquidity, debt management office, summary statistics, Bonds, Credit ratings, Collective action clauses, Bond yields, Global

JEL Classification: F34, G15, H63, G10, E50, G11