CHAPTER 3
Microstructure of the Euro-Area Government Bond Market
MADHUCCHAND DARBHA
PhD Student, ICMA Centre, Henley Business School, University of Reading
ALFONSO DUFOUR
Lecturer, ICMA Centre, Henley Business School, University of Reading
INTRODUCTION
Trade and quote data on the equity markets have been available since the 1980s (Wood, McInish, and Ord 1985; Wood 2000) and are well researched. The availability of high-frequency trade and quote data on bond markets since the 1990s has markedly improved the understanding of bond market liquidity and trading. This chapter summarizes recent developments in the bond microstructure literature and provides examples of the complexity of liquidity measurement and modeling for fixed-income securities applied to the case of the Mercato dei Titoli di Stato (MTS) euro-area government bond market, the largest electronic trading platform for European government bonds.
Fixed-income markets include money markets and bond markets. Money market securities are issued with maturities of one year or less, whereas bonds are issued with maturities greater than one year. This chapter discusses specifically bonds, and the term fixed-income securities is used interchangeably with bonds. Bond market trading differs from equity market trading because for each bond issuer, a range of tradable securities is available. Each individual fixed-income security is characterized by a specific maturity, age, coupon, and other optional features. Thus, the number of ...
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