ECB Interventions in Distressed Sovereign Debt Markets: The Case of Greek Bonds

The authors study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of European Central Bank (ECB) purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable “twist” of the Greek yield curve. However, the effects were limited to sovereign bonds actually bought. The study finds little evidence for positive effects on market quality or spillovers to close substitute bonds, credit default swap markets, or corporate bonds. The paper’s findings attest to the power of central bank intervention in times of crisis but also suggest that in highly distressed situations, this power may not extend beyond assets actually purchased.