Demand Shocks for Public Debt in the Eurozone

In this paper we use high-frequency (intraday) government bond futures price changes around German and Italian Treasury auctions to identify unexpected demand shocks for public debt. We find that positive demand shocks lead to large and persistent negative movements in Treasury yields. We also document spillover effects into other euro area countries and financial (corporate bond and equity) markets. Our results are consistent with the the "safe-haven" status of Germany versus the "high-debt" status of Italy, and these effects are stronger during periods of relatively high financial stress. We also provide some evidence suggesting that negative demand shocks for German Treasury bonds have larger effects, whereas in Italy positive demand shifts for public debt are more relevant.