Expected issuance fees and market liquidity

We examine the interaction between the primary and secondary markets for euro area sovereign bonds. Primary dealers compete to be selected as lead manager in the primary market, and have an incentive to increase liquidity. For our 2008–2012 sample of sovereign bonds from 11 euro area countries, we f...

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Bibliographic Details
Published in:Journal of financial markets (Amsterdam, Netherlands) Netherlands), 2020-03, Vol.48, p.100514, Article 100514
Main Authors: Buis, Boyd, Pieterse-Bloem, Mary, Verschoor, Willem F.C., Zwinkels, Remco C.J.
Format: Article
Language:English
Subjects:
Issuance fee
Market liquidity
Market microstructure
Sovereign bonds
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Summary:We examine the interaction between the primary and secondary markets for euro area sovereign bonds. Primary dealers compete to be selected as lead manager in the primary market, and have an incentive to increase liquidity. For our 2008–2012 sample of sovereign bonds from 11 euro area countries, we find that expected issuance fees are positively and economically related to market liquidity. The fee-driven liquidity effect is especially strong for countries with high funding needs, in periods of high re-financing uncertainty, and for low-risk bonds. •We study the determinants of liquidity for euro area sovereign bonds.•Expected issuance fees are positively and economically related to market liquidity.•Especially for countries with high funding needs in periods of high uncertainty.•Especially for low risk bonds.•Liquidity is not only driven by risk factors, but also the institutional setting.
ISSN:1386-4181
1878-576X
DOI:10.1016/j.finmar.2019.100514