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Do primary dealer funding constraints impact sovereign bond liquidity and yields: evidence for nine Euro area countries

Author

Listed:
  • Massimo Ferrari

    (University of Rome “Tor Vergata”
    European Securities and Market Authority)

  • Stéphanie Stolz

    (European Systemic Risk Board)

  • Michael Wedow

    (European Central Bank)

Abstract

For a sample of nine euro area countries and a period running from 2004 to 2012, we empirically assess the effect of primary dealers’ financial constraints on the liquidity and pricing of the sovereign bonds in which these primary dealers make the market. We find that dealers’ financial constraints generally led to less liquid sovereign bond markets, with the effect depending on the subperiod under study, the issuer and the dealers’ origin. In addition, dealers’ financial constraints generally contributed to higher yield spreads, both directly and indirectly through their impact on liquidity.

Suggested Citation

  • Massimo Ferrari & Stéphanie Stolz & Michael Wedow, 2019. "Do primary dealer funding constraints impact sovereign bond liquidity and yields: evidence for nine Euro area countries," Empirical Economics, Springer, vol. 56(6), pages 1855-1891, June.
    • Handle: RePEc:spr:empeco:v:56:y:2019:i:6:d:10.1007_s00181-018-1451-6
    DOI: 10.1007/s00181-018-1451-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity; Primary dealer; Sovereign bond markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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