DP14099 Unconventional Monetary Policy and Auction Cycles of Eurozone Sovereign Debt

Author(s):	Roel Beetsma, Josha Van Spronsen
Publication Date:	November 2019
Keyword(s):	asset purchase programs, auction cycles, market volatility, primary market, Secondary market, Sovereign debt
JEL(s):	E43, G12, G15, G18
Programme Areas:	Financial Economics, International Macroeconomics and Finance
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14099

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.