Coarse pricing in QE auctions

Yusuke Tsujimoto

Journal of Financial Markets, 2025, vol. 73, issue C

Abstract: This paper documents coarse pricing by the U.S. Federal Reserve’s counterparty intermediaries in quantitative easing operations. Although the Fed explicitly sets a tick size of 1/256th in its reverse auctions to purchase Treasury securities, offer prices of primary dealers exhibit strong clustering on coarser grids. Top dealers price more finely, and coarse pricing is particularly prevalent when the security characteristics indicate greater difficulty in precise pricing. I argue that this coarse pricing results from information costs associated with increasing pricing precision. The results also point to a novel role of tick size in affecting dealer competition in central bank operations.

Keywords: Price clustering; Quantitative easing; Treasury bond; Information processing (search for similar items in EconPapers)
JEL-codes: D43 E58 G14 G4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:73:y:2025:i:c:s1386418124000776

DOI: 10.1016/j.finmar.2024.100959

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