Auctions Cycles and Price Dynamics: Evidence of the V-Shape Effect in Brazilian Treasury Bond Auctions

Auctions Cycles and Price Dynamics: Evidence of the V-Shape Effect in Brazilian Treasury Bond Auctions

• Autor
• Sergio Gesteira Costa
• Co-autores
• Mauricio Soares Bugarin
• Resumo

• This paper investigates the presence and causes of the ‘V-shape’ effect in Brazilian government bond auctions—characterized by a decline in bond prices prior to auction dates, followed by a rebound afterward. Using a rich dataset of LTN and NTN-F securities from 2014 to 2023, we document robust price dynamics surrounding auctions that are more pronounced for longer-maturity bonds. We exploit a natural experiment—the shift in the auction frequency of NTN-F securities from biweekly to weekly in 2018—to test the risk-bearing capacity hypothesis. Empirical tests, panel regressions, and difference-indifferences estimations confirm that shorter auction cycles reduce the cost of debt up to 6bps. We find no supporting evidence for alternative explanations such as strategic tradingor slow-moving capital. These results highlight the relevance of auction frequency designas a debt management tool to reduce price distortions and issuance costs.

• Palavras-chave
• V-shape effect, auction cycles, treasury bonds, public debt management, Brazil, risk-bearing capacity.
• Modalidade
• E-pôster
• Área Temática
• Apreçamento de Ativos

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