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Estimating the Slope of the Demand Function at Auctions for Government of Canada Bonds

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  • Bo Young Chang

Abstract

We use detailed data on the bids at auctions for Government of Canada bonds between 1999 and 2021 to gauge the yield sensitivity of these bonds to the issuance amount. We propose a new metric that captures the slope of the demand function at each auction by using the information in the multiple bids (quantity and yield) that each bidder submits. In the absence of an established theoretical framework, we estimate the slope of the aggregate demand function simply by weighing the slopes of the individual demand functions, where the weights are the maximum bids of each participant. We show that these slopes can provide insights into the relationship between the supply and yield of a government debt security.

Suggested Citation

  • Bo Young Chang, 2023. "Estimating the Slope of the Demand Function at Auctions for Government of Canada Bonds," Discussion Papers 2023-12, Bank of Canada.
    • Handle: RePEc:bca:bocadp:23-12
    DOI: 10.34989/sdp-2023-12
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    References listed on IDEAS

    as
    1. Bo Young Chang & Bruno Feunou, 2013. "Measuring Uncertainty in Monetary Policy Using Implied Volatility and Realized Volatility," Staff Working Papers 13-37, Bank of Canada.
    2. Stefan Nagel, 2016. "The Liquidity Premium of Near-Money Assets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1927-1971.
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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