Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union

Spain enacted a number of important debt management initiatives in 1997 to prepare its Treasury bond market for European Monetary Union. We interpret the impacts of these changes through shifts in a bond liquidity "life cycle" function. Furthermore, we highlight the importance of expected average future liquidity in explaining Spanish bond liquidity premiums. We also uncover pricing biases that support the Spanish. Treasury's tactical decision to target high-coupon, premium bonds in its pre-EMU debt exchanges. Finally, we show that EMU has been associated with both it decrease in bond yield volatility and all increase in pricing efficiency. (c) 2005 Elsevier B.V. All rights reserved.