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Spillover Effects of Sovereign Bond Purchases in the Euro Area

Author

Listed:
  • Yvo Mudde

    (De Nederlandsche Bank)

  • Anna Samarina

    (De Nederlandsche Bank and University of Groningen)

  • Robert Vermeulen

    (De Nederlandsche Bank)

Abstract

This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Program (PSPP) on euro area government bond returns. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015–December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for arbitrage within euro area sovereign bond markets. These spillover effects are particularly large for longer-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher-yielding government bonds.

Suggested Citation

  • Yvo Mudde & Anna Samarina & Robert Vermeulen, 2024. "Spillover Effects of Sovereign Bond Purchases in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 20(2), pages 343-389, April.
    • Handle: RePEc:ijc:ijcjou:y:2024:q:2:a:8
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    References listed on IDEAS

    as
    1. W. Arrata & B. Nguyen, 2017. "Price impact of bond supply shocks: Evidence from the Eurosystem's asset purchase program," Working papers 623, Banque de France.
    2. Marcel Fratzscher & Marco Lo Duca & Roland Straub, 2016. "ECB Unconventional Monetary Policy: Market Impact and International Spillovers," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(1), pages 36-74, May.
    3. Ralph S. J. Koijen & Motohiro Yogo, 2019. "A Demand System Approach to Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1475-1515.
    4. Costantini, Mauro & Fragetta, Matteo & Melina, Giovanni, 2014. "Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective," European Economic Review, Elsevier, vol. 70(C), pages 337-349.
    5. Roberto A. De Santis & Fédéric Holm‐Hadulla, 2020. "Flow Effects of Central Bank Asset Purchases on Sovereign Bond Prices: Evidence from a Natural Experiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1467-1491, September.
    6. Carlo Altavilla & Giacomo Carboni & Roberto Motto, 2021. "Asset Purchase Programs and Financial Markets: Lessons from the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-48, October.
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    Cited by:

    1. Broeders, Dirk & de Haan, Leo & Willem van den End, Jan, 2023. "How quantitative easing changes the nature of sovereign risk," Journal of International Money and Finance, Elsevier, vol. 137(C).
    2. Hudepohl, Tom & Malderez, Suzanne, 2024. "The use of the Eurosystem’s monetary policy instruments and its monetary policy implementation framework in 2022 and 2023," Occasional Paper Series 355, European Central Bank.
    3. Andrejs Zlobins, 2023. "Is There a Portfolio Rebalancing Channel of QE in Latvia?," Working Papers 2023/05, Latvijas Banka.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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