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Sometimes It Costs Money to Sell a Lot of Bonds

Is the bid-ask spread for new bond issues indicative of a conspiracy by dealers? Perhaps it's just a necessary, and reasonable, cost of functioning bond markets.

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One basic fact about markets is that if there are 1,000 widgets in the world, and the “fair” price of a widget is $100, and you need to sell 200 widgets in an afternoon, you will probably get less than $100 per widget for them. Likewise, if you need to buy 200 widgets in an afternoon, you’ll probably pay more than $100 per widget. If you need to do anything, you’ll pay. Financial markets are good at identifying need and extracting value from it.

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