A Survey of the Microstructure of Fixed-Income Markets

Hendrik Bessembinder, Chester Spatt, and Kumar Venkataraman

This paper surveys the literature that studies fixed-income trading rules and outcomes, including Treasury securities, corporate and municipal bonds, and structured credit products. We compare and contrast the microstructure and regulation of fixed-income markets with equity markets. We highlight the nature of over-the-counter trading in the face of search costs and the associated slow evolution of electronically-facilitated intermediation. We discuss the databases available for the study of fixed-income microstructure, as well as measures of trading costs and the determinants thereof, and the important roles of dealer networks and limited transparency. We also highlight unresolved issues.