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How New Bond Issuance Influences the Liquidity of Covered Bonds

Michael Weigerding
The Journal of Fixed Income Fall 2019, 29 (2) 44-60; DOI: https://doi.org/10.3905/jfi.2019.1.072
Michael Weigerding
is a senior research analyst at Commerzbank in FrankFurt, Germany and affiliated with the University of Liechtenstein in Vaduz, Liechtenstein;
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Abstract

This study shows how primary market supply influences the secondary market liquidity of outstanding bonds. Liquidity is higher around new bond issuance by the same issuer and in the same maturity segment. It rises once the new issue is priced and remains elevated for several days. The effect is mostly attributed to switch trades between old and new bonds. It increases by the volume issued and decreases by the amount of similar paper outstanding. The liquidity surge is positively linked to the new bond’s attractiveness; it is stronger during times of positive market sentiment.

TOPICS: Project finance, statistical methods, credit risk management

Key Findings

  • • Liquidity is higher around new bond issuance by the same issuer and in the same maturity segment.

  • • The supply-liquidity effect increases by the volume issued and decreases by the amount of similar paper outstanding.

  • • The liquidity surge is positively linked to the new bond's attractiveness, and it is stronger during times of positive market sentiment.

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The Journal of Fixed Income: 29 (2)
The Journal of Fixed Income
Vol. 29, Issue 2
Fall 2019
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How New Bond Issuance Influences the Liquidity of Covered Bonds
Michael Weigerding
The Journal of Fixed Income Sep 2019, 29 (2) 44-60; DOI: 10.3905/jfi.2019.1.072

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How New Bond Issuance Influences the Liquidity of Covered Bonds
Michael Weigerding
The Journal of Fixed Income Sep 2019, 29 (2) 44-60; DOI: 10.3905/jfi.2019.1.072
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    • RELATED LITERATURE
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