Working Paper: NBER ID: w9087
Authors: Peter G. Dunne; Michael J. Moore; Richard Portes
Abstract: The introduction of the euro on 1 January 1999 created the conditions for an integrated government bond market in the euro area. Using a unique data set from the electronic trading platform Euro-MTS, we consider what is the benchmark' in this market. We develop and apply two definitions of benchmark status that differ from the conventional view that the benchmark is the security with lowest yield at a given maturity. Using Granger-causality and cointegration methods, we find a complex pattern of benchmark status in euro-area government bonds.
Keywords: Euro area; government bonds; benchmark status; Granger causality; cointegration
JEL Codes: F36; G12; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of the euro (F36) | Integrated public debt market (H63) |
| Lowest yield of German bonds (E43) | Designation as benchmark (G10) |
| Liquidity of Italian bonds at shorter maturities (E43) | Complication in benchmark designation (C46) |
| Bond yield A (G12) | Bond yield B is a benchmark (G12) |
| Cointegration of bond yields (E43) | Long-term equilibrium relationship among bonds (E43) |