Liquidity in Government versus Covered Bond Markets

Jens Dick-Nielsen, Jacob Gyntelberg, Thomas Sangill

Research output: Working paperResearch

Abstract

We present findings on the secondary market liquidity of government and covered bonds in Denmark before, during and after the 2008 financial crisis. The analysis focuses on wholesale trading in the two markets and is based on a complete transaction level dataset covering November 2007 until end 2011. Overall, our findings suggest that Danish benchmark covered bonds by and large are as liquid as Danish government bonds - including in periods of market stress. Before the financial crisis of 2008, government bonds were slightly more liquid than covered bonds. During the crisis, trading continued in both markets but the government bond market experienced a brief but pronounced decline in market liquidity while liquidity in the covered bond market was more robust - partly reflective of a number of events as well as policy measures introduced in the autumn of 2008. After the crisis, liquidity in the government bond market quickly rebounded and government bonds again became slightly more liquid than covered bonds.
We present findings on the secondary market liquidity of government and covered bonds in Denmark before, during and after the 2008 financial crisis. The analysis focuses on wholesale trading in the two markets and is based on a complete transaction level dataset covering November 2007 until end 2011. Overall, our findings suggest that Danish benchmark covered bonds by and large are as liquid as Danish government bonds - including in periods of market stress. Before the financial crisis of 2008, government bonds were slightly more liquid than covered bonds. During the crisis, trading continued in both markets but the government bond market experienced a brief but pronounced decline in market liquidity while liquidity in the covered bond market was more robust - partly reflective of a number of events as well as policy measures introduced in the autumn of 2008. After the crisis, liquidity in the government bond market quickly rebounded and government bonds again became slightly more liquid than covered bonds.
LanguageEnglish
Place of Publicationwww
PublisherDanmarks Nationalbank
Number of pages27
StatePublished - 2012
SeriesDanmarks Nationalbank. Working Papers (Online)
Number83
Volume2012
ISSN1602-1193

Bibliographical note

The material is also published by Bank for International Settlements.

Keywords

  • Bond Market Liquidity
  • Government Bonds
  • Covered Bonds
  • Price Impact

Cite this

Dick-Nielsen, J., Gyntelberg, J., & Sangill, T. (2012). Liquidity in Government versus Covered Bond Markets. www: Danmarks Nationalbank. Danmarks Nationalbank. Working Papers (Online), No. 83, Vol.. 2012
Dick-Nielsen, Jens ; Gyntelberg, Jacob ; Sangill, Thomas. / Liquidity in Government versus Covered Bond Markets. www : Danmarks Nationalbank, 2012. (Danmarks Nationalbank. Working Papers (Online); No. 83, ???volume??? 2012).
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Dick-Nielsen, J, Gyntelberg, J & Sangill, T 2012 'Liquidity in Government versus Covered Bond Markets' Danmarks Nationalbank, www.

Liquidity in Government versus Covered Bond Markets. / Dick-Nielsen, Jens; Gyntelberg, Jacob; Sangill, Thomas.

www : Danmarks Nationalbank, 2012.

Research output: Working paperResearch

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Dick-Nielsen J, Gyntelberg J, Sangill T. Liquidity in Government versus Covered Bond Markets. www: Danmarks Nationalbank. 2012.