Liquidity and the Cost of Funds in the European Treasury Bills Market
28 Pages Posted: 11 Apr 2005
Date Written: March 2004
We analyze empirically the determinants of Eurozone Treasury bills yields. Market microstructure as well as macroeconomic variables are found to significantly impact yields. Secondary trading in a centralized transparent electronic limit order book enhances liquidity and thus reduce yields. Irregularly issuing securities raises the yields government must pay. Consistent with the flight to quality hypothesis, yields are lower when the stock market is volatile. In such periods, the value of liquidity is found to be particularly high. Finally, yields are found to be greater when governments are more indebted.
Keywords: Liquidity, market microstructure, volatility, treasury bills, treasury auctions, yield spread, flight to quality, eurozone
JEL Classification: E43, E44, F36, G15
Suggested Citation: Suggested Citation