Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings

FRB of New York Staff Reports No. 145

40 Pages Posted: 18 Mar 2002

Multiple version iconThere are 2 versions of this paper

Date Written: March 2002

Abstract

This paper makes use of a natural experiment of the U.S. Treasury Department to examine the relationship between Treasury security issue size and liquidity. Treasury bills that were first issued with 52 weeks to maturity and then "reopened" at 26 weeks are shown to be more liquid than comparable maturity bills that were first issued with 26 weeks to maturity. The relationship is less pronounced when bills are "on-the-run" (the most recently auctioned bills of a given maturity) than when they are "off-the-run," and persists when controlling for other factors that affect liquidity. The reopened bills are found to have higher yields (lower prices) than comparable maturity bills, showing that the indirect liquidity benefits of reopenings are more than offset by the direct supply costs.

Keywords: Treasury Market, Liquidity, Bid-ask spread, Trading volume, Issue size

JEL Classification: H63, G14, G12

Suggested Citation

Fleming, Michael J., Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings (March 2002). FRB of New York Staff Reports No. 145, Available at SSRN: https://ssrn.com/abstract=303472 or http://dx.doi.org/10.2139/ssrn.303472

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

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