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Supply Contraction and Trading Protocol: An Examination of Recent Changes in the U.S. Treasury Market

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  • Boni, Leslie
  • Leach, J Chris

Abstract

We investigate liquidity and trader behavior in the U.S. Treasury market during recent supply contractions. As in the precontraction period, dealers employ expandable order strategies to achieve greater-than-posted depth at the posted price and use expandable orders more often when expected information asymmetry is greater. Overall, however, dealers are less likely to discover greater-than-quoted depth during the supply contraction regimes. We find that, even after substantial losses in their market share of coupon Treasury trading, brokers reporting voice-brokered trading through GovPX provide an important protocol for depth discovery.

Suggested Citation

  • Boni, Leslie & Leach, J Chris, 2002. "Supply Contraction and Trading Protocol: An Examination of Recent Changes in the U.S. Treasury Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 740-762, August.
    • Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:3:p:740-62
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    Cited by:

    1. Akay, Ozgur (Ozzy) & Cyree, Ken B. & Griffiths, Mark D. & Winters, Drew B., 2012. "What does PIN identify? Evidence from the T-bill market," Journal of Financial Markets, Elsevier, vol. 15(1), pages 29-46.
    2. Darrell Duffie & Haoxiang Zhu, 2017. "Size Discovery," The Review of Financial Studies, Society for Financial Studies, vol. 30(4), pages 1095-1150.
    3. George Jiang & Ingrid Lo & Giorgio Valente, 2014. "High-Frequency Trading around Macroeconomic News Announcements: Evidence from the U.S. Treasury Market," Staff Working Papers 14-56, Bank of Canada.
    4. James, Robert & Jarnecic, Elvis & Leung, Henry, 2022. "Who Values Economist Forecasts? Evidence From Trading in Treasury Markets," Journal of Financial Intermediation, Elsevier, vol. 49(C).
    5. Abakah, Emmanuel Joel Aikins & Gil-Alana, Luis A., 2022. "Persistence in US Treasury bonds," Finance Research Letters, Elsevier, vol. 45(C).
    6. Peter Hördahl & Eli M Remolona & Giorgio Valente, 2015. "Expectations and risk premia at 8:30am: Macroeconomic announcements and the yield curve," BIS Working Papers 527, Bank for International Settlements.
    7. Pasquariello, Paolo & Vega, Clara, 2009. "The on-the-run liquidity phenomenon," Journal of Financial Economics, Elsevier, vol. 92(1), pages 1-24, April.
    8. Kenneth Khang & Tao-Hsien Dolly King, 2010. "Short horizon liquidity and trading activity in the US Treasury market: do inventory holding costs matter?," Applied Financial Economics, Taylor & Francis Journals, vol. 20(14), pages 1085-1098.
    9. Kasing Man & Junbo Wang & Chunchi Wu, 2013. "Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation," Management Science, INFORMS, vol. 59(3), pages 695-714, September.

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