Liquidity and the cost of Funds and Integration of the Eurozone Treasury Bills Market

We analyze empirically the determinants of Eurozone Treasury bills yields. Market microstructure as well as macroeconomic variables are found to significantly impact yields. Secondary trading in a centralized transparent electronic limit order book enhances liquidity and thus reduce yields. Irregularly issuing securities raises the yields government must pay. Consistent with the flight to quality hypothesis, yields are lower when the stock market is volatile. Consistent with the flight to liquidity hypothesis, yields are lower when the amount issued is large in such periods. Finally, yields are found to be greater when governments are more indebted.