Relationship discounts in corporate bond trading

Simon Jurkatis, Andreas Schrimpf (), Karamfil Todorov and Nicholas Vause
Additional contact information
Andreas Schrimpf: BIS and CEPR

No 1049, Bank of England working papers from Bank of England

Abstract: We find that clients with stronger past trading relationships with a dealer receive consistently better prices in corporate bond trading. The top 1% of relationship clients enjoy transaction costs that are 51% lower than those of the median client – an effect which was particularly beneficial when transaction costs spiked during the Covid-19 turmoil. We find clients’ liquidity provision to be a key motive why dealers grant relationship discounts: clients to whom balance-sheet constrained dealers can turn as a source of liquidity are rewarded with relationship discounts. Another important motive for dealers to give discounts to relationship clients is because these clients generate the bulk of dealers’ profits. Finally, we find no evidence that extraction of information from clients’ order flow is related to relationship discounts.

Keywords: : Corporate bonds; Covid-19; dealers; over-the-counter markets; trading relationships (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 G24 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023-11-03
New Economics Papers: this item is included in nep-fmk and nep-mst
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https://www.bankofengland.co.uk/-/media/boe/files/ ... ate-bond-trading.pdf Full text (application/pdf)

Related works:
Working Paper: Relationship Discounts in Corporate Bond Trading (2024)
Working Paper: Relationship discounts incorporate bond trading (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1049

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