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

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  • Papavassiliou, Vassilios G.
  • Xia, Fan Dora

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.

Suggested Citation

  • Papavassiliou, Vassilios G. & Xia, Fan Dora, 2025. "Liquidity in the euro area sovereign bond market during the “dash for cash” driven by the COVID-19 crisis," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006359
    DOI: 10.1016/j.econlet.2024.112151
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    More about this item

    Keywords

    Liquidity; Sovereign bond markets; COVID-19 outbreak; Common factors;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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