When the treasury or equivalent institution of a country auctions of government bonds there is frequently (i.e. in most countries) some sort of restriction on who can participate. The term primary dealers refers to agents who participate in this primary auction with the intent of reselling the acquired bonds on the secondary market. Usually there is a gap between the bond price (or implied interest rate) of the primary and the secondary market so this is profitable.
Some papers on the phenomenon:
- VALUING DEALERS' INFORMATIONAL ADVANTAGE: A STUDY OF CANADIAN TREASURY AUCTIONS (JStor access needed)
- Who Buys Treasury Securities at Auction
What benefit if any does the treasury derive from this setup, i.e. restricting auction access?