The Dealer Market for U.S. Corporate Bonds PDF Download
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Author: Lori Ann Trawinski
Publisher:
ISBN:
Category : Bond market
Languages : en
Pages : 410
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Book Description
Author: Lori Ann Trawinski
Publisher:
ISBN:
Category : Bond market
Languages : en
Pages : 410
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Book Description
Author: Anand Srinivasan
Publisher:
ISBN:
Category :
Languages : en
Pages : 16
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Book Description
This is the first exploratory field study of the U.S. inter-dealer OTC corporate bond market. We do this by analyzing the trades of a major bond dealer and through interviews with personnel at the trading desk of this dealer. We document the competitive structure of the market in terms of the number of active dealers, the mechanism used to facilitate trades etc. We find that the mechanism of trading closely resembles a first price sealed bid auction. The number of active dealers is quite small - only 9 dealers account for a large fraction of the trades. We examine potential differences between different segments of the market. We develop a measure of competition for this bidding market based on the theory of auctions. This is the difference between the best and second best bid in a given trade. Our measure of competition indicates that competition is highest in US investment grade corporate bonds and lowest in junk bonds. We also examine the effect of size of the trade on this measure of competition. Surprisingly, large trades do not suffer from any adverse market impact. Lastly, we examine the effect of exclusion of individual bidders on the level of competition. The effect does not appear very large.
Author: Louis H. Ederington
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
Utilizing the large subset of trades in which dealers act purely as agents, we decompose dealer spreads in U.S. corporate bond OTC markets into components arising from: 1) dealers' market-making role, and 2) their role as agents for their non-dealer customers. We investigate the determinants of both components. We find that agent-related spreads are large and comparable in magnitude to market-making spreads. In their role as agents, dealers face liquidity-search and customer interface costs, while in their role as market makers they face inventory and asymmetric information costs. Consistent with this, we find that while market-making spreads are strongly correlated with market risk variables, agent-related spreads are not, depending instead on liquidity driven variables. While market-making spreads are inversely related to trade size, agent-related spreads increase with trade size before leveling off and then declining -- possibly indicating that agent-dealers devote lesser search time to relatively smaller trades. While market-making dealer spreads are positively correlated with risk variables, whether trading directly with non-dealer customers or with dealers acting purely as agents, the difference between the former and the latter is negatively correlated with risk variables implying that market-making dealers benefit more from direct interaction with traders when risk and information asymmetry is higher, consistent with dealers deriving information-related benefits from their customer interface. Except for very small trades, explicit transaction costs of non-dealer customers are lower when they trade directly with market-making dealers than when they route trades through a dealer acting purely as an agent. Finally, we show that existing studies have underestimated average overall trading costs in the corporate bond market by conflating the spreads of dealers acting purely as agents with full dealer spreads that include both agent and market making costs. Given our findings on the size and economic determinants of agent-related dealer costs, our results have significant implications for the extensive empirical literature on dealer spreads in other OTC markets.
Author: Oliver Randall
Publisher:
ISBN:
Category :
Languages : en
Pages : 61
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Book Description
I show that dealer behavior in the US corporate bond market is consistent with dealers bearing a time-varying cost of holding inventory. Liquidity is worse when inventory costs increase, especially for bonds with lower credit ratings, customers with lower bargaining power, and larger trades. When inventory costs increase, dealers sell more high yield bonds, but sell less investment grade, suggesting a flight to quality. Inventory costs don't affect dealers' trades immediately unwound in the inter-dealer market, but do affect the rate at which these trades occur, as dealers' willingness and ability to risk-share in the inter-dealer market change.
Author: Lori Ann Trawinski
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Author: Allan H. Meltzer
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 154
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Book Description
Author: T. Todd Smith
Publisher: International Monetary Fund
ISBN: 1451848870
Category : Business & Economics
Languages : en
Pages : 88
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Book Description
This paper surveys markets for corporate debt securities in the major industrial countries and the international markets. The discussion includes a comparison of the sizes of the markets for various products, as well as the key operational, institutional, and legal features of primary and secondary markets. Although there are some signs that debt markets may be emphasized in the future by some countries, it remains true that North American debt markets are the most active and liquid in the world. The international debt markets are, however, growing in importance. The paper also investigates some of the reasons for the underdevelopment of domestic bond markets and the consequences of firms shifting their debt financing needs from banks to securities markets.
Author: New York Institute of Finance
Publisher: Prentice Hall
ISBN:
Category : Business & Economics
Languages : en
Pages : 298
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Book Description
Author: Robert Zipf
Publisher: Prentice Hall Press
ISBN:
Category : Business & Economics
Languages : en
Pages : 276
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Book Description
How the Bond Market Works provides all the insight and guidance you need to benefit from this popular investment vehicle. First published in 1988, this popular guide has gone into 10 sell-out printings.
Author: Michael A. Goldstein
Publisher:
ISBN:
Category :
Languages : en
Pages : 66
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Book Description
We examine market making behavior of dealers for 55,988 corporate bonds, many of which trade infrequently. Dealers have a substantially higher propensity to offset trades within the same day rather than committing capital for longer periods for riskier and less actively traded bonds. Dealers' holding periods do not decline with a bond's prior trading activity, and in fact are lowest for some of the least active bonds. As a result, cross sectional estimates of roundtrip trading costs do not increase as prior trading activity declines. Our results suggest that dealers endogenously adjust their behavior to mitigate inventory risk from trading in illiquid and higher risk securities, balancing search and inventory costs in equilibrium such that observed spreads can appear invariant to expected liquidity.
