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Liquidity commonality in sovereign bond markets

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  • Richter, Thomas Julian

Abstract

This paper documents commonality in the liquidity of sovereign bonds. We show that local market-level liquidity changes exert a substantial influence on the liquidity of single bonds. Unlike in equity markets there is only little evidence that changes in global liquidity affect the liquidity of individual sovereign bond markets. Instead, we document the occurrence of negative cross-market correlations of liquidity across several markets and time periods. The results further suggest that diverging monetary policy and the flight-to-safety phenomenon contribute to this decoupling in liquidity correlations.

Suggested Citation

  • Richter, Thomas Julian, 2022. "Liquidity commonality in sovereign bond markets," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 501-518.
    • Handle: RePEc:eee:reveco:v:78:y:2022:i:c:p:501-518
    DOI: 10.1016/j.iref.2021.12.001
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    2. Vassilios G. Papavassilioua & Fan Dora Xiab, 2024. "Liquidity in the euro-area sovereign bond market during the “dash for cash” driven by the COVID-19 crisis," Working Papers 202406, Geary Institute, University College Dublin.

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    More about this item

    Keywords

    Liquidity; Commonality; Flight-to-safety; Sovereign bonds;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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