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The European Repo Market, ECB Intervention and the COVID-19 Crisis

Monica Billio    Università Ca’ Foscari Venezia, Italia    

Michela Costola    Università Ca’ Foscari Venezia, Italia    

Francesco Mazzari    Università Ca’ Foscari Venezia, Italia    

Loriana Pelizzon    Leibniz Institute for Financial Research SAFE, Frankfurt, Deutschland; Università Ca’ Foscari Venezia, Italia    

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abstract

During the COVID-19 crisis, the combined effect of ECB communications, concerns on sovereigns’ stability, illiquidity and market expectations led to a flight to quality. This produced a sell-off of peripheral sovereign bonds that drove the repo rates of core and peripheral countries out-of-sync. Two ECB announcements affected the repo market, namely (i) the Press Conference of the ECB Governing Council on March 12, 2020 and (ii) the announcement of a €750 billion Pandemic Emergency Purchase Program (PEPP). These two announcements had heterogeneous effects in the European repo market which we shall investigate.

Published
July 31, 2020
Accepted
June 30, 2020
Submitted
June 3, 2020
Language
EN
ISBN (EBOOK)
978-88-6969-442-4

Keywords: European repo marketRepo specialnessECB announcementsFlight-to-qualityCOVID-19 crisis

Copyright: © 2020 Monica Billio, Michela Costola, Francesco Mazzari, Loriana Pelizzon. This is an open-access work distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction is permitted, provided that the original author(s) and the copyright owner(s) are credited and that the original publication is cited, in accordance with accepted academic practice. The license allows for commercial use. No use, distribution or reproduction is permitted which does not comply with these terms.