Title: Treasury triplets and the efficiency of the US treasury marketplace

Authors: Anne M. Anderson; Richard J. Kish

Addresses: Weatherford Chair of Finance, Department of Economics and Finance, Middle Tennessee State University, Box 27, Murfreesboro, TN 37132 615-898-2365, USA ' Perella Department of Finance, Lehigh University, 621 Taylor St., Bethlehem, PA 18105, 610-758-4205, USA

Abstract: We analyse the efficiency of the US Treasury bond market during the current period of historically low interest and inflation rates by comparing the prices of the middle triplet bond with a portfolio of the low and high bonds based on coupons. We uncover 103 arbitrage opportunities for 22 triplets with maturities ranging from 1 to 11 years using daily prices retrieved from Bloomberg from 23 August, 2018, to 23 August, 2019. Our analysis of US Treasury triplets indicates that, in general, the US Treasury Market is efficiently priced, however, there are instances where short periods of inefficiencies exist. Since the market is highly liquid and the transaction costs are relatively low, arbitrageurs could make short term profits by purchasing and selling the opposite sides of the mispriced bonds. Our study reinforces the work by Fontaine and Nolin (2019).

Keywords: efficiency; arbitrage; treasury securities; bonds; asset pricing.

DOI: 10.1504/IJMEF.2021.118278

International Journal of Monetary Economics and Finance, 2021 Vol.14 No.5, pp.427 - 437

Received: 18 Jun 2020
Accepted: 20 Jul 2020
Published online: 18 Oct 2021 *

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