Anatomy of a Safe Asset: Bund Market Structure and Reform
In short
- We build a non-anonymous, transaction-level dataset for German Bunds, the euro area’s benchmark safe asset, from MiFID I and MiFID II transaction reports since 2008.
- A concentrated dealer core intermediates Bunds through persistent dealer–client relationships; trading is segmented across investor sectors and fragmented across bilateral OTC and electronic venues.
- In stress, foreign official accounts sell Bunds both in a dash for cash and in a flight to quality; hedge funds buy in both episodes.
- Execution costs do not rise with the price content of flow: hedge funds and official sector accounts carry the most permanent price-relevant flow but pay middling effective half-spreads, while retail households pay the highest.
- Mandatory central clearing would cut dealers’ net settlement obligations in Bunds by 35%; platform centralization lowers welfare in the benchmark calibration.
Abstract
This paper constructs a non-anonymous transaction-level dataset for German Bunds, the euro area’s benchmark safe asset, from MiFID I and MiFID II transaction reports since 2008. We show that a concentrated dealer core intermediates this safe asset through persistent dealer–client relationships. Trading is segmented across investor sectors, with order flow fragmented across bilateral OTC and electronic venues. Identified stress flows show foreign official accounts supplying Bunds whether prices fall in a dash for cash or rise in a flight to quality. Hedge funds absorb Bunds 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. Execution costs do not increase monotonically with the price content of flow. We evaluate two reforms targeting this structure: mandatory central clearing would cut dealers’ net settlement obligations in Bunds by 35%, less than comparable estimates for U.S. Treasuries and U.K. Gilts. In the benchmark structural calibration, platform centralization lowers welfare because matching gains from broader dealer access do not offset lost relationship surplus under imperfect dealer competition.
Presentations
- 10th Annual Workshop of the ESCB Research Cluster on Financial stability, macroprudential regulation and microprudential supervision, Frankfurt · 23–24 November 2026.
- 32nd Annual Meeting of the German Finance Association (DGF), Düsseldorf · 24–26 September 2026.
- GRETA Conference, Venice · 24–25 September 2026 (poster, presented by Willy Scherrieble).
- ESMA Research Conference “Strong EU financial markets in a volatile world”, Paris · 22 September 2026 (presented by Willy Scherrieble).