Abstract
In this paper, we intend to provide some theoretical and practical insights on the interdependence between treasury auctions and market yields around auction time. Based on previous research, we investigated the presence of the auction cycle and the corresponding V-inversed pattern of yields in the case of the Romanian sovereign bond market.
Highlights
IntroductionAs we have discussed in a previous article issuers find it more difficult to borrow new funds in the primary market without an active secondary market, so the relationship between the two is of utmost importance
As we have discussed in a previous article issuers find it more difficult to borrow new funds in the primary market without an active secondary market, so the relationship between the two is of utmost importance.Debt issuers rely on the secondary market to provide continuous flows and enhance liquidity
As specified earlier in this paper, we considered a 5-day wide interval centered at the auction day to check for the auction cycle pattern and performed the analysis for both on-the-run and off-the-run Treasury securities, using both categorization methods explained earlier (S1 and S2)
Summary
As we have discussed in a previous article issuers find it more difficult to borrow new funds in the primary market without an active secondary market, so the relationship between the two is of utmost importance. Debt issuers rely on the secondary market to provide continuous flows and enhance liquidity. Previous research in the field hinted for “systematic” differences between treasury auctions results and contemporaneous market yields (among others, Cafiso 2014; Goldreich 2007). The influence of primary market operations on the dynamics of secondary market quotes has been considered (Lou et al 2013). To the extent of our intuition, the bondage between the two markets is even tighter, as the evolution in one market is dependent on the other one. The fact that the primary and secondary markets are endogenous to one other has been addressed by some research papers
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