The measurement of financial market liquidity is not straightforward, but the symptoms of abundant market liquidity are visible and include high leverage, low bond yields, low volatility, narrow credit spreads, and high market turnover. We have constructed a composite indicator of financial market liquidity for the euro area which is based on a methodology developed by the Bank of England.
The sky had darkened since the end of last year, when difficulties with public finances in some euro area countries came into the focus of financial market participants. Following prolonged discussions about the possibility of a loan support facility for Greece, tensions rose further towards the end of April and the beginning of May.