DP12635 ECB interventions in distressed sovereign debt markets: The case of Greek bonds

Author(s): Christoph Trebesch, Jeromin Zettelmeyer
Publication Date: January 2018
Keyword(s): Central Bank Asset Purchases, eurozone crisis, Market Segmentation, Securities Markets Programme, sovereign risk
JEL(s): E43, E58, F34, G12
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12635

We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable "twist" of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.