Staff Working Paper No. 974
By Gábor Pintér, Semih Üslü and Jean-Charles Wijnandts
We develop a two-asset search-and-bargaining model of over-the-counter (OTC) trading to estimate frictions and welfare losses in the UK government and corporate bond markets. Using transaction‑level data and a matched client sample, we find that both trading delays and intermediation frictions are more pronounced in corporate bonds. Welfare losses due to these frictions are 2.4% in government bonds and 5.0% in corporate bonds – driven primarily by trading delays. Using data from the Covid-19 crisis, we find that these losses might more than double during turbulent times, revealing the fragility of the OTC market structure.
This version was updated in May 2025.
Comparing search and intermediation frictions across markets
