Demand Shocks for Public Debt in the Eurozone

In this paper we use intraday government bond futures price changes around German and Italian Treasury auctions to identify unexpected shifts in the demand for public debt. Estimates show that positive demand shocks lead to large negative movements in Treasury yields. Evidence shows significant spillover effects into Treasury bond, equity, and corporate bond markets of other eurozone countries. We find interesting differences in the effects of demand shocks between the two countries, consistent with the "safe-haven" status of German bonds versus the "high-debt" status of Italian Treasuries. Results suggest that these effects are stronger during periods of high financial stress.