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Research output: Working paper
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TY - UNPB
T1 - Bond Losses and Systemic Risk
AU - Barbosa, Klenio
AU - De Silva, Dakshina
AU - Yang, Liyu
AU - Yoshimoto, Hisayuki
PY - 2020/1
Y1 - 2020/1
N2 - This paper documents the existence of primary dealers' losses in Treasury bond markets and investigates how these losses affect dealers' market value. Using a novel data set that tracks more than 2,350 primary-to-secondary transactions, we find that bond losses for primary dealers are prevalent and were severe during the financial crisis. Our results indicate that liquidity constraints are a major source of bond losses observed in primary-to-secondary trades. We also find that financial sector value is correlated with these losses.Using an alternating market experiment, we show that bond losses are higher under discriminatory auctions as compared to uniform auctions.
AB - This paper documents the existence of primary dealers' losses in Treasury bond markets and investigates how these losses affect dealers' market value. Using a novel data set that tracks more than 2,350 primary-to-secondary transactions, we find that bond losses for primary dealers are prevalent and were severe during the financial crisis. Our results indicate that liquidity constraints are a major source of bond losses observed in primary-to-secondary trades. We also find that financial sector value is correlated with these losses.Using an alternating market experiment, we show that bond losses are higher under discriminatory auctions as compared to uniform auctions.
KW - Bond Losses
KW - Treasury Bonds
KW - Liquidity Constraint
KW - Auction Mechanisms
M3 - Working paper
T3 - Economics Working Papers Series
BT - Bond Losses and Systemic Risk
PB - Lancaster University, Department of Economics
CY - Lancaster
ER -