The costs of implementing investment strategies represent a significant drag on the performance of mutual funds and other institutional investors. It is the responsibility of institutional investors, and in the interests of the individual investors they represent, to seek market mechanisms that mitigate trading costs. We investigate an example of one such liquidity provision mechanism whereby liquidity demanders auction a set of trades as a package directly to potential liquidity providers. A critical feature of the auction is that the identities of the securities in the package are not revealed to the bidder. We demonstrate that this mechanism provides a transactions cost savings relative to more traditional trading mechanisms for the liquidity demander as well as an efficient way for liquidity suppliers to obtain order flow. We argue that the cost savings afforded this new mechanism are due to the potential for low cost crosses with the bidder's existing inventory positions and through the longer trading horizon, and superior trading ability, of the bidders. This research suggests that the ability to innovate via new liquidity provision mechanisms can provide market participants with transaction cost savings that cannot be easily duplicated on more traditional exchanges.

We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day‐to‐day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity is low. All of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve.

Do bond investors demand credit quality or liquidity? The answer is both, but at different<br/>times and for different reasons. Using data on the Euro-area government bond market,<br/>which features a unique negative correlation between credit quality and liquidity across<br/>countries, we show that the bulk of sovereign yield spreads is explained by differences<br/>in credit quality, though liquidity plays a nontrivial role, especially for low credit risk<br/>countries and during times of heightened market uncertainty. In contrast, the destination of<br/>large flows into the bond market is determined almost exclusively by liquidity.We conclude<br/>that credit quality matters for bond valuation but that, in times of market stress, investors<br/>chase liquidity, not credit quality.