The absorption effect of US Treasury auctions

The absorption effect of US Treasury auctions An event study methodology shows that the relative yields of off-the-run Treasury securities are not insulated from the effects related to the auction calendar. A statistically significant but short-lived increase in relative yields is associated with the introduction of additional cashflows at corresponding and neighboring horizons. This absorption effect, where the additional supply of cashflows is associated with lower prices, is identified separately from the liquidity effect, where newly auctioned issues obtain higher prices. While sensitive to the specification of event window, an analogous methodology employed for on-the-run bonds, finds a 1-day negative effect at the benchmark 5-, 10-, and 30-year horizons. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The absorption effect of US Treasury auctions

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-013-0363-y
Publisher site
See Article on Publisher Site

Abstract

An event study methodology shows that the relative yields of off-the-run Treasury securities are not insulated from the effects related to the auction calendar. A statistically significant but short-lived increase in relative yields is associated with the introduction of additional cashflows at corresponding and neighboring horizons. This absorption effect, where the additional supply of cashflows is associated with lower prices, is identified separately from the liquidity effect, where newly auctioned issues obtain higher prices. While sensitive to the specification of event window, an analogous methodology employed for on-the-run bonds, finds a 1-day negative effect at the benchmark 5-, 10-, and 30-year horizons.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Mar 23, 2013

References

  • The event study methodology since 1969
    Binder, J
  • Measuring security price performance
    Brown, S; Warner, J

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