Diminishing Treasury Convenience Premiums: Effects of Dealers' Excess Demand in Auctions

62 Pages Posted: 10 Mar 2022 Last revised: 11 Feb 2022

See all articles by Sven Klingler

Sven Klingler

BI Norwegian Business School

Suresh M. Sundaresan

Columbia University - Columbia Business School, Finance

Date Written: March 18, 2020

Abstract

After the global financial crisis, the yields of U.S. Treasury bills frequently exceed other risk-free rate benchmarks, thereby pointing to a diminishing convenience premium. Constructing a new measure of dealers' balance sheet constraints for providing intermediation in U.S. Treasury markets, we trace these diminishing convenience premiums to primary dealers' ability to act as intermediaries. Even after accounting for Treasury supply, levels of interest rates, and other controls, falling excess demand of primary dealers in Treasury auctions, their increased Treasury holdings, and balance sheet constraints post-2015, remain key variables in explaining the diminishing convenience premiums.

Keywords: Convenience premium, Treasury auctions, tender-cover ratios, primary dealers, risk-free rates, OIS, VIX

JEL Classification: D44, D53, G12, G14

Suggested Citation

Klingler, Sven and Sundaresan, Suresh M., Diminishing Treasury Convenience Premiums: Effects of Dealers' Excess Demand in Auctions (March 18, 2020). Available at SSRN: https://ssrn.com/abstract=3556502 or http://dx.doi.org/10.2139/ssrn.3556502

Sven Klingler (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Suresh M. Sundaresan

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States
212-854-4423 (Phone)
212-316-9180 (Fax)

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ssundaresan/

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