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Israeli Treasury Auction Reform

Author

Listed:
  • Orly Sade

    (Hebrew University of Jerusalem)

  • Roy Stein

    (Bank of Israel)

  • Zvi Wiener

    (Hebrew University of Jerusalem)

Abstract

This study examines the results of the inclusion of primary dealers in trading in government bonds under the 2006 government bond reform. Using a unique database, we compared the results of Treasury Bond auctions before, during and after implementation of the reform in order to estimate the cost of raising government debt. In order to analyze the effect of the reform on liquidity in the secondary market, we used—in addition to the full demand and winnings database of each of the participants in each auction—an intra-day database. The structure of the data enabled us to test the result of the reform on the cost of government financing by means of a number of calculations for the auction premium. When we isolated the effects of the relevant market variables, we found that after the reform, the auction premium declined significantly, but the development of prices in the secondary market shortly after the auction also changed significantly. We also found that after the reform, the auction premium was negatively affected by the uncertainty and volatility-related variables in the market, which did not affect the auction premium before the reform.

Suggested Citation

  • Orly Sade & Roy Stein & Zvi Wiener, 2018. "Israeli Treasury Auction Reform," Israel Economic Review, Bank of Israel, vol. 16(1), pages 41-61.
    • Handle: RePEc:boi:isrerv:v:16:y:2018:i:1:p:41-61
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    References listed on IDEAS

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