Template-Type: ReDIF-Paper 1.0
Author-Name: Simon Jurkatis
Author-X-Name-First: Simon 
Author-X-Name-Last: Jurkatis
Author-Name: Andreas Schrimpf
Author-X-Name-First: Andreas 
Author-X-Name-Last: Schrimpf
Author-Name: Karamfil Todorov 
Author-X-Name-First: Karamfil 
Author-X-Name-Last: Todorov 
Author-Name: Nicholas Vause 
Author-X-Name-First: Nicholas 
Author-X-Name-Last: Vause 
Title: Relationship discounts incorporate bond trading
Abstract: We find that clients with stronger past trading relationships with a dealer receive consistently better prices in corporate bond trading. The top 1% of relationship clients enjoy transaction costs that are 51% lower than those of the median client - an effect which was particularly beneficial when transaction costs spiked during the COVID-19 turmoil. We find clients' liquidity provision to be a key motive why dealers grant relationship discounts: clients to whom balance-sheet constrained dealers can turn as a source of liquidity are rewarded with relationship discounts. Another important motive for dealers to give discounts to relationship clients is because these clients generate the bulk of dealers' profits. Finally, we find no evidence that extraction of information from clients' order flow is related to relationship discounts.
Creation-Date: 2023-11
File-URL: https://www.bis.org/publ/work1140.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1140.htm
File-Format: text/html
Number: 1140
Keywords: corporate bonds, Covid-19, dealers, over-the-counter markets, trading relationships
Classification-JEL: G12, G14, G23, G24
Handle: RePEc:bis:biswps:1140