Bond Losses and Systemic Risk

63 Pages Posted: 17 Jan 2020 Last revised: 21 Jan 2020

See all articles by Klenio Barbosa

Klenio Barbosa

SKEMA Business School

Dakshina G. De Silva

Department of Economics, Lancaster University Management School

Liyu Yang

Department of Economics, Lancaster University Management School

Hisayuki Yoshimoto

University of Glasgow - Adam Smith Business School

Date Written: January 19, 2020

Abstract

This paper documents the existence of primary dealers’ losses in Treasury bond markets and investigates how these losses a¤ect dealers’ market value. 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: Treasury Auctions, Bond Losses, Discriminatory vs Uniform-Price Auctions

JEL Classification: C57, C58, D44.

Suggested Citation

Barbosa, Klenio and De Silva, Dakshina G. and Yang, Liyu and Yoshimoto, Hisayuki, Bond Losses and Systemic Risk (January 19, 2020). Available at SSRN: https://ssrn.com/abstract=3512531 or http://dx.doi.org/10.2139/ssrn.3512531

Klenio Barbosa

SKEMA Business School

60, rue Fedor Dostoïevski
Sophia Antipolis, Alpes-Maritimes 06600
France

Dakshina G. De Silva (Contact Author)

Department of Economics, Lancaster University Management School ( email )

Lancaster LA1 4YX
United Kingdom

Liyu Yang

Department of Economics, Lancaster University Management School ( email )

United Kingdom
07719714803 (Phone)

Hisayuki Yoshimoto

University of Glasgow - Adam Smith Business School ( email )

Glasgow
United Kingdom

HOME PAGE: http://hisayukiyoshimoto.org/

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