This work investigates liquidity in European sovereign bond markets. Liquidity in financial
markets is often neglected when it is abounded yet evaporating liquidity results in higher
costs of transacting and lower information quality of financial markets. The analysis studies
liquidity supplying trading strategies in debt markets and the impact of unconventional central
bank policies on the time variations in market liquidity. Unconventional policies have been
introduced since the global financial crisis and include asset purchase programs and long-term
refinancing operations. The findings show that liquidity supply in European bond market
declines during periods of financial stress and uncertainty. Moreover expansive monetary
policies and asset purchases can be associated with an improvement in market liquidity.
