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Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings

Michael J. Fleming
Journal of Money, Credit and Banking
Vol. 34, No. 3, Part 2: Declining Treasury Debt (Aug., 2002), pp. 707-735
Stable URL: http://www.jstor.org/stable/3270705
Page Count: 29
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Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings
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Abstract

This paper makes use of a natural experiment of the U.S. Treasury Department to examine the relationship between Treasury security issue size and liquidity. Treasury bills that were first issued with 52 weeks to maturity and then "reopened" at 26 weeks are shown to be more liquid than comparable maturity bills that were first issued with 26 weeks to maturity. The relationship is less pronounced when bills are "on-the-run" (the most recently auctioned bills of a given maturity) than when they are "off-the-run," and persists when controlling for other factors that affect liquidity. The reopened bills are found to have higher yields (lower prices) than comparable maturity bills, showing that the indirect liquidity benefits of reopenings are more than offset by the direct supply costs.

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