A composite indicator of sovereign bond market liquidity in the euro area

Riccardo Poli () and Marco Taboga ()
Additional contact information
Riccardo Poli: Bank of Italy
Marco Taboga: Bank of Italy

No 663, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We propose a methodology to build and validate a composite indicator of the market liquidity of euro-area sovereign bonds. The indicator aggregates several metrics from different trading venues, with the aim of providing a comprehensive measurement of prevailing bond-market liquidity conditions in the four largest euro-area economies (Germany, France, Italy and Spain). The composite indicator, which starts in 2010, allows us to put into historical context the sharp liquidity deterioration experienced at the height of the COVID-19 crisis. The deterioration was comparable to, although slightly less severe than, that experienced during the European sovereign debt crisis. However, while at the time the impairment in liquidity conditions had lasted for more than two years, this time it was quickly re-absorbed. We provide some evidence that the promptness and boldness of the ECB’s interventions in 2020 could help to explain this difference: according to our indicator, the announcements of the Pandemic Emergency Purchase Programme and other policy measures having an explicit market stabilization function were immediately followed by significant improvements in the liquidity of sovereign bonds.

Keywords: market liquidity; sovereign bonds; market microstructure; Covid-19 (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cwa, nep-eec, nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/qef/2021-0663/QEF_663_21.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_663_21

Access Statistics for this paper

More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().