ECB Interventions in Distressed Sovereign Debt Markets: The Case of Greek Bonds
We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable “twist” of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spill-overs to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.
JEL ClassificationE430 E580 F340 G120
We are grateful to Bennet Berger, Alvaro Leandro, Adrian Rott and Maximilian Rupps for excellent research assistance, Christine Sheeka for helpful information on the MTS high-frequency data, Jonathan Lehne, Olga Ponomarenko, and Kristjan Piilmann for assisting us with the collection of Bloomberg data and Egor Gornostay for his careful fact-checking. We also thank the Editor, several anonymous referees, Henrique Basso, Benjamin Böninghausen, Giovanni Dell’Ariccia, Marcel Fratzscher, Thomas King, Sergi Lanau, Athanasios Orphanides, Seth Pruitt, Julian Schumacher, Bernd Schwaab, Andrei Shleifer, Linda Tesar, Julian Williams, and seminar participants at the ECB, the Federal Reserve Bank of Chicago, the Federal Reserve Bank of San Francisco, the Bank of Spain, the LSE Financial Markets Group, ZEW Mannheim, and the Universities of Frankfurt (Goethe), Mainz, Munich, and Santa Clara for helpful comments and suggestions.
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