How do Treasury Dealers Manage their Positions?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractUsing data on U.S. Treasury dealer positions from 1990 to 2006, we find evidence of a significant role for dealers in the intertemporal intermediation of new Treasury security supply. Dealers regularly take into inventory a large share of Treasury issuance so that dealer positions increase during auction weeks. These inventory increases are only partially offset in adjacent weeks and are not significantly hedged with futures. Dealers seem to be compensated for the risk associated with these inventory changes by means of price appreciation in the subsequent week.

Cross‐Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area

“…First, there is a small literature that has explored the interplay between domestic primary and secondary public debt markets. Fleming and Rosenberg (2007) and Lou, Yan, and Zhang (2013) find evidence of an auction cycle for the U.S., while Beetsma et al (2016) find similar evidence for Italian public debt auctions, but only limited evidence for German debt auctions. 2 Moreover, they find that the Italian auction cycle is larger in the period since the onset of the crisis in 2007 than before the crisis.…”

Mortgage Risk and the Yield Curve

“…Fleming and Rosenberg (2008) find that Treasury dealers are compensated by high excess returns when holding large inventories of newly issued Treasury securities. More generally, financial intermediaries and institutional investors hold approximately 25% of the total amount outstanding in Treasuries, and daily trading volume is almost 10% of the total amount outstanding.…”

Market-making costs in Treasury bills: A benchmark for the cost of liquidity

“…There are significant parameter estimates for both the bids and asks on Mondays and Thursdays. Parameter estimates for Mondays are positive for both the bid and ask, and Fleming and Rosenberg (2008) Table 8 contains the post-collapse results. Both the bid and ask have significant and positive parameter estimates on Mondays, reflecting that yields increased and prices fell on Mondays as the time series moves from 27-day T-bills to 31-day T-bills.…”

“…Similarly, if a dealer does not have sufficient inventory, then the dealer temporarily raises the price to attract sellers. However, Fleming and Rosenberg (2008) state that because it is redeemed, fixed-income inventory is unique and thus provides a regular disposition that is distinct from other secondary markets. Clearly, T-bills have this disposition feature.…”