Supply Contraction and Trading Protocol: An Examination of Recent Changes in the U.S. Treasury Market.
We investigate liquidity and trader behavior in the U.S. Treasury market; during recent supply contractions. As in the precontraction period,; dealers employ expandable order strategies to achieve greater-than-posted; depth at the posted price and use expandable orders more often when; expected information asymmetry is greater. Overall, however, dealers are; less likely to discover greater-than-quoted depth during the supply; contraction regimes. We find that, even after substantial losses in their; market share of coupon Treasury trading, brokers reporting voice-brokered; trading through GovPX provide an important protocol for depth discovery.