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Price Discovery in the Treasury‐Bill When‐Issued Market
Author(s) -
Mercer Jeffrey M.,
Moore Mark E.,
Whitby Ryan J.,
Winters Drew B.
Publication year - 2013
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2012.00354.x
Subject(s) - price discovery , treasury , spot contract , order (exchange) , economics , mid price , financial economics , spot market , microeconomics , market price , normal backwardation , market manipulation , forward contract , business , monetary economics , finance , price level , futures contract , electricity , electrical engineering , archaeology , history , engineering
When‐issued (i.e., forward) trading in T‐bills yet to be auctioned provides a unique environment for examining price discovery. Because T‐bills are auctioned in a sealed‐bid process, when‐issued traders cannot observe the spot market price. Yet the forward price must ultimately converge on the auction outcome price. Our results indicate that traders in the when‐issued market “discover” the ultimate auction price. Little evidence is found that standard order flow variables contribute to price discovery. Instead, the ability to observe a few trades with relatively small volume in the when‐issued market is sufficient to discover the auction price resulting from the sealed‐bid process.