| Summary: | 碩士 === 國立中正大學 === 財務金融所 === 98 === This paper examines the yield differences between on-the-run and off-the-run Treasury bonds in Taiwan. Specifically, we study if and how the yield spread between the two types of bond changes over the on/off cycle. Furthermore, this paper investigates the changing pattern of the yield differences between the reopened and the original issue of Treasury bond. Finally, to better understand how economic factors affect the price and liquidity of the securities, we include default spread and term spread as explanatory variables.
Our empirical results show that, off-the-run bond yield is on average higher than that of on-the-run bonds in our sample of 5-year and 10-year Treasuries. We also find that the yield of reopened issue tends to be higher than that of the original issue. For both on/off-the-run pairs and reopened issues, yield spreads are found to be decreasing as time go to by.
Finally, our findings indicate that the bond liquidity spread is positively correlated with the default spread and term spread. Hence, a drop of bond market liquidity is shown to be present during recession.
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