The market liquidity of interest rate swaps

Ismael Alexander Boudiaf, Martin Scheicher and Immo Frieden

No 147, ESRB Working Paper Series from European Systemic Risk Board

Abstract: This paper studies market liquidity in interest rate swaps (IRS) before and during the global tightening of monetary policy. IRS constitute the single largest derivatives segment globally. Banks and Pension Funds extensively rely on IRS to hedge interest rate risk. Hence, providing an understanding of this market and the drivers of market liquidity is a key research question in the current market context. We use price and volume data from around 338.000 trades in the most active long-horizon swap contract denominated in EUR to construct seven liquidity measures. Taking a comprehensive approach, we ap-ply linear regressions to determine the drivers of variation in liquidity. Our liquidity measures are significantly related to monetary policy, market-wide fixed income liquidity, EURIBOR rate volatility and Dealer behaviour. Indicators for generic market stress such as VIX which are often documented in the literature are not strongly connected to IRS trading conditions. JEL Classification: G12, G15

Keywords: fixed income; liquidity; market structure; swap (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-mst
Note: 152802
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.esrb.europa.eu//pub/pdf/wp/esrb.wp1xx.en.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:srk:srkwps:2024147

Access Statistics for this paper

More papers in ESRB Working Paper Series from European Systemic Risk Board 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().