Work in Progress

Outages in Sovereign Bond Markets

• • We use outages as natural experiments to study sovereign bond market functioning. When the futures market goes down, cash market trading declines, liquidity evaporates, and prices deviate from fundamentals. At the micro level, outages reduce dealers’ intermediation capacity and exacerbate information asymmetries. Dealers reliant on bond futures withdraw, forcing clients to accept higher markups or to trade directly with other clients, causing mispricing. In contrast, cash market outages barely affect futures trading, implying one-way price formation. Our findings reveal trade-offs between a (de)centralized market structure, support cross-asset learning models, and show how financial intermediaries impose limits to arbitrage.

  • with Caspar Helmus, February 2025 version, ECB working paper, 🏷️ 

  • runner-up for ESRB's 2024 Ieke van den Burg Prize for research on systemic risk