A Comparison of Trading Costs in the U.S. Municipal, Corporate, and Treasury Bond Market

Sugato Chakravarty () and Asani Sarkar

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: We compare trading costs in the U.S. Treasury bond market with U.S. corporate and municipal bond markets, based on newly available transaction data. We estimate that the mean bid-ask spread per $100 par value is 23 cents for municipal bonds, 21 cents for corporate bonds and 8 cents for Treasury bonds. Maturity, trading volume and credit ratings are key determinants of the bid-ask spread. After controlling for credit risk, the bid-ask spread is not statistically different for the corporate in Treasury markets but is higher for municipal bonds relative to Treasuries. Finally, we examine why institutions sometimes trade without dealers, and find that the relative volume of directly negotiated trades in a bond decreases in the bid-ask spread and the trading volume, and increases with age of the bond.

Keywords: U.S. bond markets; trading costs; dealers; institutions; electronic trading (search for similar items in EconPapers)
JEL-codes: G10 G14 G22 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2001
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:pur:prukra:1148

Access Statistics for this paper

More papers in Purdue University Economics Working Papers from Purdue University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Business PHD ().