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Are larger Treasury issues more liquid? Evidence from bill reopenings

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Michael J. Fleming

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Abstract

This paper makes use of a natural experiment of the U.S. Treasury Department to examine the relationship between Treasury security issue size and liquidity. Treasury bills that were first issued with fifty-two weeks to maturity and then reopened at twenty-six weeks are shown to be more liquid than comparable maturity bills that were first issued with twenty-six weeks to maturity. The relationship is less pronounced when bills are on-the-run (the most recently auctioned bills of a given maturity) than when they are off-the-run, and persists when controlling for other factors that affect liquidity. The reopened bills are found to have higher yields (lower prices) than comparable maturity bills, showing that the indirect liquidity benefits of reopenings are more than offset by the direct supply costs.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 145.

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Date of creation: 2002
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Handle: RePEc:fip:fednsr:145

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Related research
Keywords: Treasury bills ; Liquidity (Economics) ; Asset pricing;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Paul Bennett & Kenneth Garbade & John Kambhu, 1999. "Enhancing the Liquidity of U.S. Treasury Securities in an Era of Surpluses," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-083, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  2. Crabbe, Leland E & Turner, Christopher M, 1995. " Does the Liquidity of a Debt Issue Increase with Its Size? Evidence from the Corporate Bond and Medium-Term Note Markets," Journal of Finance, American Finance Association, vol. 50(5), pages 1719-34, December. [Downloadable!] (restricted)
  3. Michael J. Fleming, 1997. "The round-the-clock market for U.S. Treasury securities," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-32. [Downloadable!]
  4. Edwin J. Elton & T. Clifton Green, 1998. "Tax and Liquidity Effects in Pricing Government Bonds," Journal of Finance, American Finance Association, vol. 53(5), pages 1533-1562, October. [Downloadable!] (restricted)
  5. Benston, George J. & Hagerman, Robert L., 1974. "Determinants of bid-asked spreads in the over-the-counter market," Journal of Financial Economics, Elsevier, vol. 1(4), pages 353-364, December. [Downloadable!] (restricted)
  6. Michael J. Fleming, 2001. "Measuring treasury market liquidity," Staff Reports 133, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  7. Park, Sang Yong & Reinganum, Marc R., 1986. "The puzzling price behavior of treasury bills that mature at the turn of calendar months," Journal of Financial Economics, Elsevier, vol. 16(2), pages 267-283, June. [Downloadable!] (restricted)
  8. Michael J. Fleming, 2000. "The benchmark U.S. Treasury market: recent performance and possible alternatives," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 129-145. [Downloadable!]
  9. Stoll, Hans R, 1978. "The Supply of Dealer Services in Securities Markets," Journal of Finance, American Finance Association, vol. 33(4), pages 1133-51, September. [Downloadable!] (restricted)
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  10. Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 329-343, September. [Downloadable!]
  11. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November. [Downloadable!] (restricted)
  12. Simon, David P., 1991. "Segmentation in the Treasury Bill Market: Evidence from Cash Management Bills," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(01), pages 97-108, March. [Downloadable!]
  13. Duffie, Darrell, 1996. " Special Repo Rates," Journal of Finance, American Finance Association, vol. 51(2), pages 493-526, June. [Downloadable!] (restricted)
  14. Warga, Arthur, 1992. "Bond Returns, Liquidity, and Missing Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 605-617, December. [Downloadable!]
  15. Dominique Dupont & Brian Sack, 1999. "The Treasury securities market: overview and recent development," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 785-806. [Downloadable!]
  16. Simon, David P., 1994. "Further evidence on segmentation in the treasury bill market," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 139-151, January. [Downloadable!] (restricted)
  17. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March. [Downloadable!]
  18. Paul Bennett & Kenneth Barbade & John Kambhu, 2000. "Enhancing the liquidity of U.S. Treasury securities in an era of surpluses," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 89-119. [Downloadable!]
  19. Ho, Thomas & Stoll, Hans R., 1981. "Optimal dealer pricing under transactions and return uncertainty," Journal of Financial Economics, Elsevier, vol. 9(1), pages 47-73, March. [Downloadable!] (restricted)
    Other versions:
  20. Duffee, Gregory R, 1996. " Idiosyncratic Variation of Treasury Bill Yields," Journal of Finance, American Finance Association, vol. 51(2), pages 527-51, June. [Downloadable!] (restricted)
  21. Kamara, Avraham, 1994. "Liquidity, Taxes, and Short-Term Treasury Yields," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(03), pages 403-417, September. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Chris D'Souza & Charles Gaa & Jing Yang, 2003. "An Empirical Analysis of Liquidity and Order Flow in the Brokered Interdealer Market for Government of Canada Bonds," Working Papers 03-28, Bank of Canada. [Downloadable!]
  2. Michael J. Barclay & Terrence Hendershott & Kenneth Kotz, 2006. "Automation versus Intermediation: Evidence from Treasuries Going Off the Run," Journal of Finance, American Finance Association, vol. 61(5), pages 2395-2414, October. [Downloadable!] (restricted)
  3. David Goldreich & Bernd Hanke & Purnendu Nath, 2005. "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market," Review of Finance, Springer, vol. 9(1), pages 1-32, 03. [Downloadable!] (restricted)
  4. Dimitri Vayanos & Pierre-Olivier Weill, 2006. "A Search-Based Theory of the On-the-Run Phenomenon," NBER Working Papers 12670, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Michael J. Fleming & Joshua V. Rosenberg, 2007. "How do treasury dealers manage their positions?," Staff Reports 299, Federal Reserve Bank of New York. [Downloadable!]
  6. Michał Krawczyk, 2009. "Demand functions in Polish Treasury auctions," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 40(4), pages 31-49. [Downloadable!]
  7. Coluzzi, Chiara & Ginebri, Sergio & Turco, Manuel, 2008. "Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08044, University of Molise, Dept. SEGeS. [Downloadable!]
  8. Bruce Mizrach & Christopher J. Neely, 2006. "The transition to electronic communications networks in the secondary treasury market," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 527-542. [Downloadable!]
  9. William C. Dudley & Jennifer Roush & Michelle Steinberg Ezer, 2009. "The case for TIPS: an examination of the costs and benefits," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-17. [Downloadable!]
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