Bond Losses in Post-Auction Resale Markets and Systemic Risk

Bond Losses in Post-Auction Resale Markets and Systemic Risk

• Author
• Klenio Barbosa
• Co-authors
• Dakshina G. De Silva , Liyu Yang , Hisayuki Yoshimoto
• Abstract

• This paper estimates the relationship primary-dealers returns in post-auction resale markets for treasury bonds and financial systemic risk. 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.

• Keywords
• Bond Losses, Treasury Bonds, Systemic Risk, Auction Mechanisms.
• Subject Area
• Corporate Finance, Intermediation, and Banking

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