The University of Southampton
University of Southampton Institutional Repository

Liquidity interactions in credit markets: an analysis of the Eurozone sovereign debt crisis

Liquidity interactions in credit markets: an analysis of the Eurozone sovereign debt crisis
Liquidity interactions in credit markets: an analysis of the Eurozone sovereign debt crisis
At the end of 2009, countries in the Eurozone began to experience a sudden divergence of bond yields as the perceived prospect of sovereign default risk increased. This paper examines the potential spillovers between the liquidity of the sovereign credit default swap (CDS) market and the liquidity of the sovereign bond market for a group of Eurozone countries. Empirically, we consider the differential spread on various Eurozone members sovereign bonds over the equivalent German benchmark. Using a unique dataset, constructed from the tick by tick transaction history from the 5-10 year maturity of the sovereign bond and CDS markets, we find that for countries such as Portugal, Spain and Ireland, the CDS market reveals a growing influence on bond yields post 2009. We provide substantial evidence that Greek sovereign CDS spreads and debt spreads do not exhibit the same time varying correlative patterns. Furthermore, we suggest that CDS spreads and bond credit spreads for Greek debt have correctly priced the default risk and that the trend patterns observed have not been substantially affected by changes in the liquidity profiles of either market. On a general note, we show that the bond yield liquidity spreads have increased substantially over the 2007-2010 period whilst CDS liquidity spreads have fallen dramatically. For some countries, such as Portugal, liquidity risk plays an important role in the sovereign bond market
Calice, Giovanni
1c9451e2-855a-484a-8214-36a140686017
Chen, Jing
5d1f11be-b12a-4517-9035-1b8b16078087
Williams, Julian
53c2f319-c67b-458e-841f-ac3a94bdb353
Calice, Giovanni
1c9451e2-855a-484a-8214-36a140686017
Chen, Jing
5d1f11be-b12a-4517-9035-1b8b16078087
Williams, Julian
53c2f319-c67b-458e-841f-ac3a94bdb353

Calice, Giovanni, Chen, Jing and Williams, Julian (2011) Liquidity interactions in credit markets: an analysis of the Eurozone sovereign debt crisis. Budapest Economic Seminar Series at Magyar Nemzeti Bank, Hungary. 27 Apr 2011. 41 pp .

Record type: Conference or Workshop Item (Other)

Abstract

At the end of 2009, countries in the Eurozone began to experience a sudden divergence of bond yields as the perceived prospect of sovereign default risk increased. This paper examines the potential spillovers between the liquidity of the sovereign credit default swap (CDS) market and the liquidity of the sovereign bond market for a group of Eurozone countries. Empirically, we consider the differential spread on various Eurozone members sovereign bonds over the equivalent German benchmark. Using a unique dataset, constructed from the tick by tick transaction history from the 5-10 year maturity of the sovereign bond and CDS markets, we find that for countries such as Portugal, Spain and Ireland, the CDS market reveals a growing influence on bond yields post 2009. We provide substantial evidence that Greek sovereign CDS spreads and debt spreads do not exhibit the same time varying correlative patterns. Furthermore, we suggest that CDS spreads and bond credit spreads for Greek debt have correctly priced the default risk and that the trend patterns observed have not been substantially affected by changes in the liquidity profiles of either market. On a general note, we show that the bond yield liquidity spreads have increased substantially over the 2007-2010 period whilst CDS liquidity spreads have fallen dramatically. For some countries, such as Portugal, liquidity risk plays an important role in the sovereign bond market

Full text not available from this repository.

More information

Published date: 27 April 2011
Venue - Dates: Budapest Economic Seminar Series at Magyar Nemzeti Bank, Hungary, 2011-04-27 - 2011-04-27
Organisations: Centre for Digital, Interactive & Data Driven Marketing

Identifiers

Local EPrints ID: 196909
URI: https://eprints.soton.ac.uk/id/eprint/196909
PURE UUID: a5251467-551e-4c66-82d3-bfc15f44071e

Catalogue record

Date deposited: 15 Sep 2011 10:45
Last modified: 18 Jul 2017 11:21

Export record

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of https://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×