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Collateral Haircuts and Bond Yields in the European Government Bond Markets

Lookup NU author(s): Dr Minh Nguyen

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Abstract

With the help of a rich collateral haircut dataset, this paper examines the relations between the collateral haircuts and the yields of Euro-area central government bonds. The empirical analysis shows that newly issued or on-the-run bonds are required lower haircuts and yields than older or off-the-run bonds from the same issuers and with similar maturities. The results suggest that investors demand higher yields for bonds with higher collateral haircuts. The importance of collateral haircuts on bond yields remains robust after controlling for the variations in credit quality, market liquidity and the effects of the European sovereign debt crisis.

Publication metadata

Author(s): Nguyen M

Publication type: Article

Publication status: Published

Journal: International Review of Financial Analysis

Year: 2020

Volume: 69

Print publication date: 01/05/2020

Online publication date: 27/02/2020

Acceptance date: 24/02/2020

Date deposited: 28/01/2019

ISSN (print): 1057-5219

ISSN (electronic): 1873-8079

Publisher: Elsevier

URL: https://doi.org/10.1016/j.irfa.2020.101467

DOI: 10.1016/j.irfa.2020.101467

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