Bond Losses and Systemic Risk

Barbosa, Klenio and De Silva, Dakshina and Yang, Liyu and Yoshimoto, Hisayuki (2020) Bond Losses and Systemic Risk. Working Paper. Lancaster University, Department of Economics, Lancaster.

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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.

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Monograph (Working Paper)
?? bond lossestreasury bondsliquidity constraintauction mechanismsc57c58d44 ??
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06 Feb 2020 15:40
Last Modified:
08 Jan 2024 00:25