The importance of being special: repo markets during the crisis

Stefano Corradin and Angela Maddaloni

No 2065, Working Paper Series from European Central Bank

Abstract: We study how the Italian sovereign bond scarcity premia - specialness - in the repo market were affected by the European Central Bank (ECB)'s purchases during the Euro area sovereign debt crisis. We propose and calibrate a search-based dynamic model with a central bank acting as a buy-and-hold investor. Consistent with model predictions, ECB purchases drive specialness of targeted securities in combination with short-selling. Special benchmark bonds entail a positive cash premium but their market liquidity decreases when purchased by the ECB. Short-sellers were more likely to fail-to-deliver very special bonds while holders of these bonds were less inclined to pledge them as collateral to the ECB liquidity operations. JEL Classification: E43, E51, G01, G12, G23

Keywords: central bank asset purchases; credit risk; market liquidity; repo; short-selling; specialness (search for similar items in EconPapers)
Date: 2017-05
Note: 1103497
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2065.en.pdf (application/pdf)

Related works:
Journal Article: The importance of being special: Repo markets during the crisis (2020)
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:ecb:ecbwps:20172065

Access Statistics for this paper

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