Supply Contraction and Trading Protocol: An Examination of Recent Changes in the U.S. Treasury Market

Leslie Boni and J Chris Leach

Journal of Money, Credit and Banking, 2002, vol. 34, issue 3, 740-62

Abstract: We investigate liquidity and trader behavior in the U.S. Treasury market during recent supply contractions. As in the precontraction period, dealers employ expandable order strategies to achieve greater-than-posted depth at the posted price and use expandable orders more often when expected information asymmetry is greater. Overall, however, dealers are less likely to discover greater-than-quoted depth during the supply contraction regimes. We find that, even after substantial losses in their market share of coupon Treasury trading, brokers reporting voice-brokered trading through GovPX provide an important protocol for depth discovery.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:34:y:2002:i:3:p:740-62

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