Failed delivery and daily Treasury bill returns

Ramon Degennaro and James Moser

No 9003, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: If the seller of a Treasury bill does not provide timely and correct delivery instructions to the clearing bank, the bank does not deliver the security. Further, the seller is not paid until this \"failed delivery\" is rectified. Since the purchase price is not changed, these \"fails\" generate interest-free loans from the seller to the buyer. ; This paper studies the effect of failed delivery on Treasury-bill prices. We find that investors bid prices to a premium to reflect the possibility of obtaining the interest-free loans that fails represent. This premium is a function of the opportunity cost of the fail. We also find that the bid-ask spread varies directly with the length of the fail. We rule out the possibility that our results are due to liquidity premiums, or to a general weekly pattern in short-term interest rates or the bid-ask spread.

Keywords: Treasury; bills (search for similar items in EconPapers)
Date: 1990
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://fraser.stlouisfed.org/scribd/?item_id=4945 ... 0-03.pdf#scribd-open Full text (application/pdf)

Related works:
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:fip:fedcwp:9003

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().