The absorption effect of US Treasury auctions

Seth Kopchak

Review of Quantitative Finance and Accounting, 2014, vol. 43, issue 1, 44 pages

Abstract: An event study methodology shows that the relative yields of off-the-run Treasury securities are not insulated from the effects related to the auction calendar. A statistically significant but short-lived increase in relative yields is associated with the introduction of additional cashflows at corresponding and neighboring horizons. This absorption effect, where the additional supply of cashflows is associated with lower prices, is identified separately from the liquidity effect, where newly auctioned issues obtain higher prices. While sensitive to the specification of event window, an analogous methodology employed for on-the-run bonds, finds a 1-day negative effect at the benchmark 5-, 10-, and 30-year horizons. Copyright Springer Science+Business Media New York 2014

Keywords: US Treasury auctions; Yield curve; Event study; G12; G28; E43 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11156-013-0363-y

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