Bond buy-and-hold investors create a liquidity premium for newly issued bonds

Evidence

More subtly, however, anomalies can arise in the pricing of bonds, and these anomalies sometimes become large enough that sophisticated traders can exploit them profitably. For example, the market in newly issued (“on-the-run”) U.S. Treasury bonds is more liquid than the market in less recently issued (“offthe-run”) bonds: many off-the-run bonds are in the relatively static portfolios of pension funds and insurance companies. Investors concerned with liquidity are therefore prepared to pay a premium for on-the-run bonds. — Donald MacKenzie, An Engine, Not a Camera, 953

Categorization

• XREF: Links to the liquidity-premium literature in asset pricing and to how microstructure affects arbitrage - relevant to this book’s performativity thesis as a baseline market mechanism. — connects to: Regulated investors’ restricted choices can make high-grade bond financing a super-premium strategy — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 191