Euro government bond market

EXHIBIT 5.4 Euro Government Bond Market Breakdown in Percentage Terms (2002)... 

EXHIBIT 5.5 Euro Government Bond Market Outstanding by Redemption Date ( million)... 

Tbe Euro Government Bond Market Antonio Viiiarroya... 

The Euro market has not only become the largest government bond market in size but also in number of issues. This market had in February 2003 over 250 liquid issues (over 1 billion outstanding and 1-year maturity), significantly more than the 108 issues in the Treasury market or the nearly 170 JGB issues. There are just around 25 liquid issues trading in the UK gilt market. 

The two main developments in the Euro government bond primary market since the inception of EMU have been the decline in the relative... 

The evolution of Euro government bond swap spreads has always been linked to the performance of the peripheral spreads (or vice versa). Yet this relationship should be taken with a pinch of salt as, having the German rate in both sides of the equation, a simple spike in the German market bond volatility will make this correlation increase spuriously. 

Many Euro government bonds can be stripped, breaking them down into each of the single payments that they involve, that is, one flow for each remaining coupon payment and another one for the principal. With this procedure an n-year maturity coupon-bearing bond is transformed into n + 1 strips (zero coupon bonds), which can be traded separately in the market. Yet this market is much less liquid in the Eurozone than in the United States. 

What does the Z-spread represent for this nongovernment security Since the Z-spread is relative to the benchmark euro spot rate curve, it represents a spread required by the market to compensate for all the risks of holding the nongovernment bond versus a government bond... 

The broadening of the investor base together with the desire to enhance the liquidity in the government bond secondary market have been the main reasons behind the continuous increase in the size of both the Euro bond outstandings as well as the amounts offered at every auction. 

The size of the repo market reflects the size of the cash market in government bonds, which is the largest in Europe. The instruments used in the market are listed in Exhibit 10.26. Securities marked with a are listed by ISMA as Euro GC securities. Most transactions are one-week maturity, while, unusually for repo, overnight trades are rarer. This may be because stamp duty is chargeable at a flat rate on domestic deals, and so this is an incentive for market participants to undertake longer-dura-tion repo trades. 

---