Abstract
I examine the impact of the Fed's open market operations on the US government bond market. I find that bond market bid-ask spreads are greater, while market depth, trading volume and average trade size are smaller on days when the Fed conducts repo auctions than on days without such operations. I also find that bond returns volatility is significantly higher on days the Fed implements only regular overnight open market operations than on days when both short- and long-term operations are undertaken. I explain these findings with inventory risks vs. collateral reassignment problems faced by primary dealers.
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