Is the EMU government bond market a playground for asymmetries?

We investigate the volatility dynamics of some major European Monetary Union sovereign bond markets. We provide an endogenous identification in terms of two Markov switching regimes for market volatility and analyze the impact of capital and trade flows together with policy actions on the persistence of volatility swings. The empirical findings indicate that, with some notable exceptions, capital and trade flows measures were a matter of minor importance for European Monetary Union sovereign bond markets included in our set. On the contrary, central banksʼ liquidity provision indicators had important but asymmetrical effects on the persistence of the European Monetary Unionʼs bond market volatility swings. Although we do not straightly reject the increased market integration hypothesis, these asymmetries suggest that certain domestic factors still weigh heavily in times of stress for market sentiment.