Domestic and Cross-Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area

Abstract

This paper provides evidence of spillovers from foreign primary public debt issues into domestic secondary market auction cycles in the euro area. It also confirms the presence of such auction cycles in response to domestic debt issues. These results are consistent with the theory of primary dealers' limited risk-bearing capacity. Consistent with the theory, domestic auction cycles in response to new debt issues are stronger during the crisis period, while the cross-border effects tend to be stronger in the pre-crisis period, possibly as a result of reduced integration of euro area sovereign bond markets during the crisis.

Keywords: auction cycles, auctions, crisis, cross-border effects, limited risk-bearing capacity, primary dealers, primary markets, public debt, secondary markets

JEL Classification: G12, G18