How did order-flow impact bond prices during the European Sovereign Debt Crisis?

The impact of trades on price dynamics in the European sovereign debt markets is of significant importance to policy makers and market participants. This paper uses high-frequency quote and transaction data from the MTS European sovereign bond inter-dealer platform to investigate price-order-flow dynamics from July 2005 until December 2011 for Germany, France, Portugal, Italy, Ireland, Spain and Greece. We find that order-flow had a larger impact on quote revision in a relatively low-intensity trading environment than in a relatively high-intensity trading environment implying that informed traders should only execute in low-intensity trading environments when they value immediacy over discretion. This analysis is consistent with the limited prior literature for European debt markets. Our analysis indicates that this relationship persists during turbulent market conditions. Also, we find that the impact of order-flow on subsequent trades was larger during periods of high-trading intensity implying that market participants use order splitting trading strategies.