I hope you can help me. I want to use the bid-ask spread of prices for 10yr treasury notes as a proxy for bond market liquidity.

I got monthly aggregated bond price data (for yrs 1999-2013) from CRSP's Treasuries data base. However, when I calculate the bid-ask spread for the individual 10 yr notes, I see bid-ask spreads for many notes over several years almost constant (0,03125) although there are significant changes in both, bid and ask prices. Only toward the end of my time series (2009-2013) I see some variability in bid-ask spreads.

Can someone please explain to me why I observe almost constant bid-ask spreads?

I uploaded the file on google drive, here is the link: https://drive.google.com/open?id=19cn4tUr89bToodORRi5NIH7L-mni0TRN

Thank you very much in advance, Nik

  • 2
    $\begingroup$ Prices are quoted in fractions, with the minimum spread now being 1/128th. This probably narrowed during your observation period from 0.03125 = 1/32, and you'll find that all your spreads are multiples of 0,0078125 = 1/128. See cmegroup.com/education/files/understanding-treasury-futures.pdf. Note that the min. spread narrowing is a pure guess - I am not very familiar with the US bond market. $\endgroup$ – LocalVolatility Nov 11 '17 at 13:20

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