Expected Issuance Fees and Market Liquidity

Abstract

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Dynamic Connectedness between Credit and Liquidity Risks in EMU Sovereign Debt Markets

“…These studies invariably find that credit and liquidity risks are individually significant and time-varying and are independently exacerbated by global market risk and macroeconomic risk factors. Buis et al (2020), link the liquidity, or market access of euro area sovereigns in the primary market to the incentives that primary dealers have and the risk that they are prepared to take as market makers in the secondary market, which is, among others, influenced by the sovereign's credit risk.…”

“…We take our bond price information from the MTS dealing platform. Dunne et al (2006), Coluzzi et al (2008) and Buis et al (2020) describe MTS as the leading interdealer electronic trading platform for euro area sovereign and quasi-sovereign bonds. Since the quotes that are posted by the dealers on the platform are immediately tradeable and can be executed instantly, MTS is essentially an order-driven market [See e.g., Cheung et al (2005), Caporale and Girardi (2013) or Darbha and Dufour (2013)].…”

“…Dufour and Skinner (2004) give a comprehensive description of the MTS high-frequency data. We obtain the record for the three best bid and ask prices for We follow Coluzzi et al (2008), Ejsing and Sihvonen (2009) and Buis et al (2020) in the selection of the three most commonly used liquidity measures from the MTS limit order book. These three measures are based on the bid-ask spread representing the tightness of liquidity, on the volumes quoted with these prices representing the depth of the liquidity, and on a slope measure from price and volume quotes representing the breadth of liquidity.…”

“…Concretely, our study contributes to the existing literature in four ways. First, we go beyond the traditional notion that liquidity risk is essentially the sovereigns' ability to access the bond market and add important insights to it using a slope measure recently proposed by Buis et al (2020) that includes both price and volume information. To our knowledge, this is the first paper to use this slope measure to examine the interrelation between liquidity risk and sovereign credit risk.…”

Investor Demand in Syndicated Bond Issuances: Stylised Facts

“…Usually, the price discovery during a syndicated transaction leads to a higher price than in the secondary market, hence showing a positive new issue premium (NIP). Buis et al (2020) highlight the institutional setting of the European primary and secondary sovereign bond markets. They point out syndicate banks are providing liquidity in secondary markets to qualify for primary market syndicates.…”