This study uses a unique proprietary database in order to investigate the results of the 2006 reform in which primary dealers were introduced into the Israeli Treasury securities market. The study compares the results of the treasury auctions before, during and after implementation of the reform. The study uses an intra-day database for analyzing the effect of the reform on liquidity, in addition to the full demand and winnings database of each auction. The data enables us to test the result of the reform on the bond market and to measure the cost of government financing by presenting a number of measures for the auction premium We show that after allowing for other relevant variables, the price in the auction, relative to the price in the secondary market at the same time, declined by as statistically significant extent due to the reform. We also show that the uncertainty-related variables which we investigated have a negative effect on the auction premium—but only after the reform, while before the reform there was no effect. We show that while the auction premium was declined as a result of the reform, the dynamics of the price changes in the secondary market around the auctions changed significantly.

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