Explanation:
Option C is false. Special spreads typically start low immediately after an auction because the supply of the newly issued security is plentiful. Over the auction cycle, as the security is absorbed by buy-and-hold investors and used for other purposes, it becomes scarce, causing its special spread to increase and typically peak right before the next auction of the same maturity. Options A, B, and D are true statements regarding special spreads.
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514.3. In regard to special spreads, each of the following is true EXCEPT which is false?
A
On-the-run (OTR) issues tend to trade "more special" than off-the-run (OFR; i.e., old or double-old) issues, where "more special" refers to special spreads that are larger
B
The special spread equals the general collateral (GC) repo rate minus the special collateral (aka, specifically requested collateral) repo rate
C
On-the-run special spreads peak immediately after an auction, and tend to decrease over the cycle, reaching their lowest level immediately before the next auction
D
Special spreads tend to be volatile on a daily basis (reflecting supply and demand for special collateral) and special spreads can be quite large (e.g., hundreds of basis points)