Christoph Trebesch (Ludwig-Maximilians-Universität)
ECB Interventions in Distressed Sovereign Debt Markets: The Case of GreekBondsResearch Seminars
The presented paper analyses the determinants and effects of ECB interventions using bond-level data from Greece. We identify ECB purchases of individual Greek bonds using the fact that the ECB did not participate in the Greek debt exchange of March 2012, thus becoming a residual creditor and revealing its stock of holdings. In a first step, we analyse ECB bond buying activities and conclude that the ECB applied simple "rules of thumb" when intervening in the Greek market. Two variables alone (bond size and bond yields) can explain 70 per cent of the large variation in ECB purchases across bonds. In a second step, we explore the short-term effects of ECB interventions in May and June 2010, a period of severe debt distress. We find that bonds bought by the ECB show a much larger drop in yields after the start of the SMP and that their yields also rebound much less in the weeks afterwards. Overall, our findings indicate that interventions had a large "local" impact on the price of individual sovereign bonds. This gives further support for theories focusing on illiquid and segmented bond markets.