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Are larger Treasury issues more liquid? Evidence from bill reopenings

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  • Michael J. Fleming

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 52 weeks to maturity and then "reopened" at 26 weeks are shown to be more liquid than comparable maturity bills that were first issued with 26 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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Suggested Citation

  • Michael J. Fleming, 2002. "Are larger Treasury issues more liquid? Evidence from bill reopenings," Proceedings, Federal Reserve Bank of Cleveland, pages 707-739.
  • Handle: RePEc:fip:fedcpr:y:2002:p:707-739
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    More about this item

    Keywords

    Treasury bills;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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