The bond/old-bond spread☆

@inproceedings{Krishnamurthy2002TheBS,
  title={The bond/old-bond spread☆},
  author={Arvind Krishnamurthy},
  year={2002}
}
I document the profits on a trade that is long the old 30-year Treasury bond and short the new 30-year Treasury bond, and is rolled over every auction cycle from June 1995 to November 1999. Despite the systematic convergence of the spread over the auction cycle, the average profits are close to zero. The difference in repo-market financing rates between the two bonds is a significant cost of carry in this trade. I show that variation in the bond/old-bond spread is driven by the Treasury supply… CONTINUE READING

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