Large Order Size Liquidity in Treasury Markets

Abstract

We measure market liquidity for large-sized orders in the ten-year treasury futures market estimating mean-variance frontiers for their execution cost during the period of 2012 to 2017. We identify large orders from regulatory transaction data and introduce a methodological innovation to infer the urgency of a large order from the pattern of its execution. We find that the mean-variance frontier becomes significantly worse as order size increases, but that the frontier has improved over the time period studied. We also find that the costs of executing large orders on behalf of customers are significantly greater than the costs of executing orders for house accounts.