Title: The pandemic emergency asset purchase and the sovereign bond market connectedness

Authors: Tarek Chebbi; Waleed Hmedat

Addresses: Department of Administrative and Financial Sciences, Oman College of Management and Technology, 320 Barka, Sultanate of Oman ' Department of Administrative and Financial Sciences, Oman College of Management and Technology, 320 Barka, Sultanate of Oman

Abstract: We examined the extent to which the biggest euro area sovereign bond markets are connected during the 2017-2020 period. Accordingly, we used the recent Gabaue (2020)'s approach viewed as an alternative to Diebold and Yilmaz's volatility connectedness methodology. We find that such markets are considerably connected during the whole period and the spillovers are relatively time varying. The results also show that the Spanish bond market is the primary net transmitter of shocks, followed by the Italian bond market, while the markets for Germany and France are the main net receivers. Second, we highlight some contribution of ECB's asset purchase and other monetary policy announcements to bilateral spillovers. Also, some pronounced spillovers are found to be generated from the monetary policy in US. Finally, the effect differs widely across bilateral linkages in terms of sign and magnitudes. A likely explanation is that investors started discriminating more through markets.

Keywords: connectedness analysis; bond markets; Covid-19 crisis; Euro area; monetary policy.

DOI: 10.1504/IJMEF.2023.130888

International Journal of Monetary Economics and Finance, 2023 Vol.16 No.2, pp.105 - 120

Received: 08 Feb 2022
Accepted: 20 Sep 2022
Published online: 13 May 2023 *

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