Abstract
This paper tests for price pressure effects in the
cash U.S. Treasury market for bonds that are the cheapest-to-deliver (CTD) instrument
in the Treasury bond futures market. We find that there is a detectable and
significant premium in the cash market of roughly 14 cents, on average, for
deliverable bonds that are CTD, which is both statistically and economically
significant. Further, we find that CTD status remains a significant factor in
the relative pricing of these securities after accounting for control variables.
Our results add to the body of literature examining idiosyncratic price
behavior within the U.S. Treasury market.
