Liquidity and the Cost of Funds in the European Treasury Bills Market

28 Pages Posted: 11 Apr 2005

See all articles by Bruno Biais

Bruno Biais

Centre for Economic Policy Research (CEPR)

Antoine Renucci

University of Toulouse 1

Gilles Saint-Paul

University of Toulouse I - GREMAQ-IDEI; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: March 2004

Abstract

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

Biais, Bruno and Renucci, Antoine and Saint-Paul, Gilles, Liquidity and the Cost of Funds in the European Treasury Bills Market (March 2004). Available at SSRN: https://ssrn.com/abstract=686408 or http://dx.doi.org/10.2139/ssrn.686408

Bruno Biais

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Antoine Renucci

University of Toulouse 1

Place Anatole France
Department of Finance
F-31042 Toulouse Cedex
France

Gilles Saint-Paul (Contact Author)

University of Toulouse I - GREMAQ-IDEI ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
+33 5 6112 8544 (Phone)
+33 5 6122 5563 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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