Repo dealer-driven bond mispricing

Carlos Cañón Salazar, Eddie Gerba and Jozef Barunik
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Carlos Cañón Salazar: Bank of England
Eddie Gerba: Bank of England
Jozef Barunik: Charles University

No 1145, Bank of England Staff Working Paper series from Bank of England

Abstract: This paper uses proprietary data sets from the UK bond and repo markets to analyse the effect of funding market frictions on bond prices and market-wide liquidity. Starting with the structure of the repo market, we demonstrate how individual dealer market power and dealer linkages generate frictions. Specifically, we demonstrate that frictions related to market power account for between 0.5 and 1.3 percentage points of bond price deviations, whereas the transmission of heterogeneously persistent shocks between dealers accounts for between 2 and 4 percentage points of price deviations.

Keywords: Market power; repo dealers; frictions; mispricing; market liquidity (search for similar items in EconPapers)
JEL-codes: G14 G21 G22 G23 (search for similar items in EconPapers)
Pages: 72
Date: 2025-10-10
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023267

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