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Yiu Chung Cheung

Essays on European Bond Markets

In the past years, the fiscal policy of the Eurozone members, advances in the technology of trading platforms and the introduction of a single currency have reshaped the fixed income markets in Europe. Currently, the Eurozone bond market is the third largest market in the world with the German futures contracts among the heaviest traded financial contracts. These developments have resulted in a far going integration of European capital markets. This Ph.D. dissertation “Essays on European Bond Markets” focuses on a number of issues which are of importance in the current Eurozone bond market. The first part of this work, which is also the lion's share of this dissertation, focuses on the microstructure of European bond markets. Using transaction data, we study the costs of trading Eurozone government bonds and the price dynamics of interdealer markets (chapter 3). We also analyze the cost of carry when trading Eurozone bonds in combination with the heavily traded bund futures contract (chapter 4). We show that basis volatility is an important price factor for bond traders. The second part of this work (chapter 5) focuses on the growing European inflation-linked bond market. We analyze the yield spread between nominal and real bonds and we propose a method for estimating the inflation and liquidity component in these securities.

Date of thesis defense: 31 May