欧洲央行主权债券市场失灵2024

Outages in sovereign bond markets Disclaimer:This paper should not be reported as representing the views of the European Central Bank(ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. Abstract We use outages as natural experiments to study sovereign bond market functioning. Whenthe euro area futures market goes down, trading activity on the cash market declines, liquidityevaporates, and transaction prices deviate from fundamental values. Tracing back this macro-level market breakdown to the micro-level, we show that particularly dealers withdraw fromthe cash market during outages. While most of their remaining trades remain fairly priced,dealer’s capacity to intermediate trades on the cash market is reduced, forcing more clientsto trade directly with each other, leading to substantial mispricing.Lastly, outages oncash trading venues barely affect the futures market, suggesting that price formation andliquidity provision is a one-way street, and outages on the US and euro area futures marketbarely affect each other, in stark contrast to the significant price spillovers.Our resultsreveal the trade-offs between a (de)centralized market structure, they support cross-assetlearning models to explain the link between liquidity and arbitrage, and they demonstratehow financial intermediaries can impose important limits to arbitrage. Keywords:Yield curve, market microstructure, natural experiment. JEL classification:G12, G14, G23 Non-technical summary Sovereign bond markets are at the core of the financial system.This paper uses outages asnatural experiments to improve our understanding of how these markets function.We studyseveral outages on different trading venues affecting different financial instruments. All of theseoutages were caused by unanticipated and exogenous technical glitches. Hence, how the differenttrading venues, instruments, and market participants reacted to these rare outage events is highlyinformative about how the sovereign bond market functions in normal times. Our first key result is that the cash market for euro area sovereign bonds vitally dependson bond futures. Bond futures oblige the buyer to buy (or the seller to sell) a sovereign bondat a predetermined price and date in the future. When these bond futures stop trading due toan outage of the Eurex futures exchange, bonds on the cash market trade less frequently, theirliquidity evaporates, and their transaction prices deviate from their fundamentally fair values. Thanks to our non-anonymous transaction dataset, we can pinpoint the micro-level mech-anisms underlying these macro-level results.The behavior of financial intermediaries, mostimportantly dealers, turns out to be crucial. These dealers are mostly large banks participatingin the auctions of new sovereign bonds. They reduce their cash market presence the most duringEurex outages. If they do trade, they trade at fundamentally fair prices, but they largely stop totake on inventory risk to intermediate trades between clients, such as investment funds, insur-ance companies or non-financial corporations. Hence, clients trade directly with each other, andprecisely these client-to-client trades often occur at prices far from fundamentally fair values. The dichotomy between dealers and clients also explains a number of other phenomena weobserve on the cash market during Eurex outages.For instance, trading volumes and marketliquidity drop more – but pricing errors increase less – for bonds of longer maturity, wheredealers are comparatively more active. Similarly, small transactions become most mispriced, asthese are usually executed between clients. Taken together, our micro-level evidence shows thatdealers have an informational advantage over clients, in the sense that dealers properly pricerisk-free sovereign bonds even without bond futures. At the same time, dealers impose importantlimits to arbitrage, since they rely heavily on the futures market for hedging purposes. In effect,the Eurex outage acts as an exogenous shock reducing their intermediation capacity. Unable tohedge any additional inventory risk, dealers retract from the cash market, where clients pushmarket prices away from fundamental values. We also look at the other direction and study outages on four different bond trading platformson the cash – rather than future – market. We find that these outages have rather small effects,not only within the cash market, but also on the futures market.This suggests that priceformation and liquidity provision is more of a one-way street from the futures to the cashmarket. Lastly, we study transatlantic spillovers. We find little evidence that outages on Eurexaffect the market functioning on CME, the main US futures exchange. Even more surprisingly,we also find no effect in the other direction. Whereas a large literature documents strong pricespillovers from the US to Europe, we find virtually no liquidity spillovers. 1Introdu