Relationship Discounts in Corporate Bond Trading

Simon Jurkatis, Andreas Schrimpf, Karamfil Todorov and Nicholas Vause

No 18784, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 for why dealers grant relationship discounts. Another important motive is that relationship 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; Liquidity; Over-the-counter markets; Relationships (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 G24 (search for similar items in EconPapers)
Date: 2024-01
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Related works:
Working Paper: Relationship discounts incorporate bond trading (2023)
Working Paper: Relationship discounts in corporate bond trading (2023)
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