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Discussion Paper
Repo Rate Sensitivity to Treasury Issuance and Quantitative Tightening
Over the past six months, Treasury repo rates have risen, on average, relative to the rate on the overnight reverse repurchase agreement (ON RRP) facility and have become more volatile. Recent literature has argued that these trends have been driven, in part, by the cumulative effects of quantitative tightening (QT).2Specifically, during QT the Fed reduces its security holdings, which increases the amount of Treasury securities held by private investors. The reduction in securities holdings also results in a reduction in Federal Reserve (Fed) liabilities, which decreases the amount of ...
Discussion Paper
Who Buys Treasuries When the Fed Reduces its Holdings
The Federal Reserve began to decrease the size of its balance sheet in June 2022, entering a phase of "balance sheet reduction" that continues today. In this note, we determine which sectors absorbed the resulting increased supply of Treasury coupon securities. We find that, during the first balance sheet reduction period between 2017 and 2019, dealers, households, and hedge funds bought significantly more Treasury coupons. However, during the post-pandemic balance sheet reduction period, it appears that dealers, private insurance, and the rest of the world purchased the Treasury coupon ...