How Do Treasury Dealers Manage Their Positions?

Using data on U.S. Treasury dealer positions from 1990 to 2006, the authors find evidence of a significant role for dealers in intertemporal intermediation of new Treasury security supply. Dealers regularly take into inventory a large share of Treasury issuance so that dealer positions increase during auction weeks. These inventory increases are only partially offset in adjacent weeks and are not significantly hedged with futures. Dealers seem to be compensated for the risk associated with these inventory changes via price appreciation the subsequent week.