Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152819
Authors: 
Menkveld, Albert J.
Cheung, Yiu Chung
de Jong, Frank
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 385
Abstract: 
We study sovereign yield dynamics and order flow in the largest euro-area treasury markets. We exploit unique transaction data to explain daily yield changes in the ten-year government bonds of Italy, France, Belgium, and Germany. We use a state space model to decompose these changes into (i) a “benchmark” yield innovation, (ii) a yield spread common factor innovation, (iii) country-specific innovations, and (iv) (transitory) noise. We relate changes in each of these factors to national order imbalance and find that Italian order imbalance impacts the common factor innovation, French and Belgian order imbalance impact country-specific innovations, and German order imbalance only changes yields temporarily. Order imbalance, however, does not have explanatory power for the most important factor: benchmark yield innovations.
Subjects: 
euro
Government bond
international
order imbalance
JEL: 
G10
G15
G18
Document Type: 
Working Paper

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