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Journal of Financial Intermediation Vol. 25 2016

Price effects of sovereign debt auctions in the euro-zone: The role of the crisis

Roel Beetsma1,2; Massimo Giuliodori1,2; Frank de Jong; Daniel Widijanto3

1 Tinbergen Institute · 2 University of Amsterdam · 3 BNG Vermogensbeheer, The Netherlands

open access

Abstract

We show that new public debt issues cause an auction cycle for Italian secondary-market debt, but not for German debt. The cycle is mainly observed for the crisis period since mid-2007 and is larger when the crisis, as measured by yield volatility and CDS spreads of primary dealers, is more intense. Volatility seems to be the main driving factor. The cycle is also present in secondary-market series with maturities close to the auctioned series. Our findings are consistent with the theory of primary dealers’ limited risk-bearing capacity. There is also weak evidence of spill-overs from foreign auctions to domestic markets.

DOI
10.1016/j.jfi.2014.11.004
Volume
25
Pages
30-53
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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