Working Paper: CEPR ID: DP14099
Authors: Roel Beetsma; Josha Spronsen
Abstract: We provide evidence that the ECB's unconventional monetary policy dampens yield cycles in secondary markets for Eurozone sovereign debt around new sovereign debt auctions. This dampening effect tends to be larger when market volatility is higher. Cycles caused by domestic auctions and the role of market volatility are largest for countries with low credit ratings. Auctions by these countries also generate highly-significant auction cycles in other countries. Auction cycles can have a non-negligible effect on debt-servicing costs, but these may be contained by concentrating debt issuance in tranquil periods and by coordinating auction calendars among countries, so as to maximize the dispersion of auction activity in time.
Keywords: auction cycles; sovereign debt; asset purchase programs; primary market; secondary market; market volatility
JEL Codes: E43; G12; G15; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ECB purchases (E58) | reduced yield fluctuations (E32) |
| market volatility (G17) | reduced yield fluctuations (E32) |
| credit rating (G21) | strength of the relationship between auction cycles and ECB purchases (D44) |
| auction cycles (D44) | increased debt-servicing costs (F34) |
| strategic timing of debt issuance and coordination of auction calendars (H63) | mitigated increased debt-servicing costs (F34) |
| ECB purchases (E58) | reduced average size of auction cycles (D44) |
| market volatility (G17) | influence on auction cycles (D44) |