Quote Competition in Corporate Bonds

Terrence Hendershott, Dan Li, Dmitry Livdan, Schürhoff, Norman and Kumar Venkataraman

No 20205, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Dealer quotes in corporate bonds, though indicative, lower trading costs and increase trading volume. Dealers offering higher quality quotes attract more order flow and execute trades at favorable prices. Dealers advertise quotes to manage their inventories and attract orders from non-relationship clients. However, quote competition is imperfect; the best quotes often fail to attract orders, and trade-throughs are common. Nevertheless, quote competition is important as clients exploit quotes from other dealers in negotiations, forcing dealers with lower quality quotes to offer price improvements. Quoting is not a zero-sum game, as higher bond-level quoting leads to higher bond-level trading.

JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Date: 2025-05
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