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

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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.
Original languageAmerican English
JournalJournal of Money, Credit and Banking
StatePublished - Aug 2002


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