The Impact of Open Market Operations on the Government Bond Market: Microstructure Evidence
National Research University Higher School of Economics
February 15, 2009
I examine the impact of the Fed's open market operations on the US government bond market. I find that bond market bid-ask spreads are greater, while market depth, trading volume and average trade size are smaller on days when the Fed conducts repo auctions than on days without such operations. I also find that bond returns volatility is significantly higher on days the Fed implements only regular overnight open market operations than on days when both short- and long-term operations are undertaken. I explain these findings with inventory risks vs. collateral reassignment problems faced by primary dealers.
Number of Pages in PDF File: 42
Keywords: open market operations, market impact, repo contracts, volatility, liquidity
JEL Classification: G14, G18, E58working papers series
Date posted: February 17, 2009
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.494 seconds