Liquidity premia in German government bonds

Jukka Sihvonen, Jacob Ejsing

Tutkimustuotos: TyöpaperiWorking paperScientific

Abstrakti

There is strong evidence that on-the-run U.S. Treasury securities trade much more liquidly and at significantly higher prices than their off-the-run counterparts. We examine if the same phenomenon is present in the German government bond market whose market structure differ markedly from that of the U.S. Treasury market. In sharp contrast to the U.S. evidence, we find that on-the-run status has only a negligible effect on the liquidity and pricing once other factors have been controlled for. Instead, the highly liquid German bond futures market, whose turnover is many times larger than in the cash market, leads to significant liquidity spillovers. Specifically, we find that bonds which are deliverable into futures contracts are both trading more liquidly and commanding a significant price premium, and that this effect became more pronounced during the recent financial crisis.
AlkuperäiskieliEnglanti
TilaJulkaistu - 2009
OKM-julkaisutyyppiD4 Julkaistut kehitykset tai tutkimusraportit tai tutkimukset

Julkaisusarja

NimiEuropean Central Bank Working Paper Series
ISSN (painettu)1725-2806

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