Outages in sovereign bond markets
with Caspar Helmus · R&R at the Journal of Financial Economics
· ECB Working Paper, 2024 (revised December 2025).
We exploit outages in sovereign bond markets as natural experiments. When the euro area futures
market goes down, trading volumes on the cash market decline, liquidity evaporates, and prices
deviate from fundamental values. Micro-level evidence reveals two mechanisms: the loss of a
hedging instrument reduces dealers’ intermediation capacity, and the missing benchmark
price widens information asymmetries for clients. Outages on the cash market, in contrast,
merely reduce futures trading activity, implying one-way price formation and liquidity
provision. Our findings highlight the trade-offs of market centralization, support cross-asset
learning over symmetric arbitrage models, and demonstrate how intermediaries impose limits to
arbitrage.
Paper (PDF)
Slides (London 2025)
BibTeX
Anatomy of a Safe Asset: Bund Market Structure and Reform
with Konrad Lucke and Willy Scherrieble · Deutsche Bundesbank Discussion Paper (forthcoming).
This paper constructs a non-anonymous transaction-level dataset for German Bunds, the euro
area’s benchmark safe asset, from regulatory reports since 2008. We show how this safe asset
actually trades: activity is organized around a concentrated dealer core, segmented across investor
sectors, and fragmented across venues. In stress, identified flows reveal who supplies the safe
asset and who absorbs it: foreign official accounts sell Bunds whether prices fall in a dash for
cash or rise in a flight to quality; hedge funds buy in both episodes, while primary dealers absorb
Covid selling but distribute Bunds after fiscal supply news. Hedge funds and official sector
accounts carry the most permanent price-relevant flow, yet pay middling effective half-spreads,
while retail households pay by far the highest effective half-spreads: execution costs do not
increase monotonically with the price content of flow. We evaluate two reforms that target this
structure: mandatory central clearing would cut dealers’ settlement obligations in Bunds even
more than comparable estimates for U.S. Treasuries and U.K. Gilts; in the benchmark structural
calibration, platform centralization lowers welfare: the matching gains from broader dealer access
do not offset the loss of relationship surplus under imperfect dealer competition.
