Journal Article

The European Bond Markets under EMU

Marco Pagano and Ernst-Ludwig von Thadden

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 20, issue 4, pages 531-554
Published in print January 2004 | ISSN: 0266-903X
Published online January 2004 | e-ISSN: 1460-2121 | DOI: https://dx.doi.org/10.1093/oxrep/grh031
The European Bond Markets under EMU

More Like This

Show all results sharing these subjects:

  • Economic Development and Growth
  • Public Economics
  • Political Economy
  • Public Policy

GO

Show Summary Details

Preview

In this paper, we document how, in the wake of monetary unification, the markets for euro-area sovereign and private-sector bonds have become increasingly integrated. Issuers and investors alike have come to regard the euro-area bond market as a single one. Primary and secondary bond markets have become increasingly integrated on a pan-European scale. Issuance of corporate bonds has taken off on an unprecedented scale in continental Europe. In the process, both investors and issuers have reaped the considerable benefits afforded by greater competition in the underwriting of private bonds and auctioning of public ones, and by the greater liquidity of secondary markets. Bond yields have converged dramatically in the transition to EMU. The persistence of small and variable yield differentials for sovereign debt under EMU indicates that euro-area bonds are still not perfect substitutes. However, to a large extent, this does not reflect persistent market segmentation but rather small differentials in fundamental risk. Liquidity differences play at most a minor role, and this role appears to arise partly from their interaction with fundamental risk. The challenges still lying ahead are numerous. They include: the imbalance between the German-dominated futures and the underlying cash market; the vulnerability of the cash markets' prices to free-riding and manipulation by large financial institutions; the possibility of joint bond issuance by euro-area countries; the integration of clearing and settlement systems in the euro-area bond market; and the participation of new accession countries' issuers in this market.

Journal Article.  0 words. 

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.