Relationship discounts in corporate bond trading

Simon Jurkatis, Andreas Schrimpf, Karamfil Todorov and Nicholas Vause

No 1049, Bank of England working papers from Bank of England

Abstract: We find that clients with stronger past trading relationships with a dealer receive consistently better prices in corporate bond trading. The top 1% of relationship clients enjoy transaction costs that are 51% lower than those of the median client – an effect which was particularly beneficial when transaction costs spiked during the Covid-19 turmoil. We find clients’ liquidity provision to be a key motive why dealers grant relationship discounts: clients to whom balance-sheet constrained dealers can turn as a source of liquidity are rewarded with relationship discounts. Another important motive for dealers to give discounts to relationship clients is because these clients generate the bulk of dealers’ profits. Finally, we find no evidence that extraction of information from clients’ order flow is related to relationship discounts.

Keywords: : Corporate bonds; Covid-19; dealers; over-the-counter markets; trading relationships (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 G24 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023-11-03
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... ate-bond-trading.pdf Full text (application/pdf)

Related works:
Working Paper: Relationship Discounts in Corporate Bond Trading (2024)
Working Paper: Relationship discounts incorporate bond trading (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1049

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().