Liquidity in the euro area sovereign bond market during the “dash for cash” driven by the COVID-19 crisis

Vassilios Papavassiliou and Fan Dora Xia

Economics Letters, 2025, vol. 247, issue C

Abstract: We study the liquidity of the euro area sovereign bond market during the March 2020 dash for cash. We provide evidence that liquidity was significantly impaired across the three core euro area countries. We note that the liquidity deterioration was not as severe as that during the euro area sovereign debt crisis. Spikes in illiquidity are reversed in the period immediately following the dash for cash episode. We also document strong commonalities in liquidity that are reduced after the dash for cash. This finding indicates that variation in liquidity exhibits a strong common component highlighting the systemic risk that comes as a result.

Keywords: Liquidity; Sovereign bond markets; COVID-19 outbreak; Common factors (search for similar items in EconPapers)
JEL-codes: C5 G01 G10 G15 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Liquidity in the euro-area sovereign bond market during the “dash for cash” driven by the COVID-19 crisis (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006359

DOI: 10.1016/j.econlet.2024.112151

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