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

Author

Listed:
  • Vassilios G. Papavassilioua

    (University College Dublin and UCD Geary Institute for Public Policy)

  • Fan Dora Xiab

    (Bank for International Settlements (BIS))

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 signif- icantly 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 imme- diately following the dash for cash episode. We also document strong com- monalities in liquidity that are reduced after the dash for cash. This result indicates that variation in liquidity exhibits a strong common component highlighting the systemic risk that comes as a result.

Suggested Citation

  • 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.
    • Handle: RePEc:ucd:wpaper:202406
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    References listed on IDEAS

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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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