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The relevance of primary dealers for public bond issues

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  • Breuer, Wolfgang

Abstract

We analyze the role of different kinds of primary and secondary market interventions for the government's goal to maximize its revenues from public bond issuances. Some of these interventions can be thought of as characteristics of a primary dealer system. After all, we see that a primary dealer system with a restricted number of participants may be useful in case of only restricted competition among sufficiently heterogeneous market makers. We further show that minimum secondary market turnover requirements for primary dealers with respect to bond sales seem to be in general more adequate than the definition of maximum bid-ask-spreads or minimum turnover requirements with respect to bond purchases. Moreover, official price management operations are not able to completely substitute for a system of primary dealers. Finally it should be noted that there is in general no reason for monetary compensations to primary dealers since they already possess some privileges with respect to public bond auction.

Suggested Citation

  • Breuer, Wolfgang, 1999. "The relevance of primary dealers for public bond issues," CFS Working Paper Series 1999/11, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:199911
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    References listed on IDEAS

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    1. Vincent Reinhart, 1992. "An analysis of potential Treasury auction techniques," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 403-413.
    2. Victoria Saporta, 1997. "Which Inter-dealer Market Prevails? An analysis of inter-dealer trading in opaque markets," Bank of England working papers 59, Bank of England.
    3. Peter C. Reiss & Ingrid M. Werner, 1998. "Does Risk Sharing Motivate Interdealer Trading?," Journal of Finance, American Finance Association, vol. 53(5), pages 1657-1703, October.
    4. Breedon, Francis & Ganley, Joe, 2000. "Bidding and Information: Evidence from Gilt-Edged Auctions," Economic Journal, Royal Economic Society, vol. 110(466), pages 963-984, October.
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    Cited by:

    1. Eisl, Alexander & Ochs, Christian & Staghøj, Jonas & Subrahmanyam, Marti G., 2022. "Sovereign issuers, incentives and liquidity: The case of the Danish sovereign bond market," Journal of Banking & Finance, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    public bonds; primary dealers; official market interventions; bond auctions; market makers;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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