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Discussion Paper
Recent Developments in Hedge Funds’ Treasury Futures and Repo Positions: is the Basis Trade “Back"?
In short, the answer is "probably", at least to some degree. This note summarizes recent developments in hedge funds' Treasury futures and repo positions derived from the Commodities Futures and Trading Commission's (CFTC's) Traders in Financial Futures data and the Office of Financial Research's ("OFR") Cleared Repo Collection.
Discussion Paper
The Rise of Sponsored Service for Clearing Repo
Recently instituted rule amendments have initiated a large migration of dealer-to-client Treasury repurchase trades to central clearing. To date, the main avenue used to access central clearing is Sponsored Service, a clearing product that has, until now, received little attention. This post highlights the results from a recent Staff Report which presents a deep dive into Sponsored Service. Here, we summarize the description of the institutional details of this service and its costs and benefits. We then document some basic facts on how market participants use this service, based on ...
Discussion Paper
The Central Bank Balance-Sheet Trilemma
Between December 2005 and December 2025, the Federal Reserve's balance sheet grew from about $800 billion to roughly $6.5 trillion—an increase from around 6 percent to 21 percent of GDP. This expansion primarily reflected two policy decisions by the FOMC.
Report
The term structure of the price of variance risk
We empirically investigate the term structure of variance risk pricing and how it varies over time. We estimate the aversion to variance risk in a stochastic-volatility option pricing model separately for options of different maturities and find that variance risk pricing decreases in absolute value with maturity but remains significantly different from zero up to the nine-month horizon. We find consistent non-parametric results using estimates from Sharpe ratios of delta-neutral straddles. We further show that the term structure is downward sloping both during normal times and in times of ...
Working Paper
Reaching for Duration and Leverage in the Treasury Market
We show substantial variation in mutual funds' use of Treasury futures, both over time and across funds. This variation from mutual funds drives much of the time series variation in aggregate Treasury futures open interest, including over 60% of the recent rise in Treasury futures positions. We provide evidence these Treasury futures positions are largely attributable to mutual funds “reaching for duration†in order to track the duration of a benchmark index with high cash Treasury exposure. Specifically, we show mutual funds use futures to fill the gap between their portfolio and ...
Discussion Paper
Proportionate margining for repo transactions
The repurchase agreement (repo) market plays a central role in funding and leveraging securities positions, and sourcing securities. Traders in the repo market protect themselves from the default of their counterparties through margin collected via haircuts on repo transactions. Since the purpose of margin is to protect a firm from the default of a counterparty, when set appropriately these margins accurately reflect the risk and costs of counterparty default.1Recent research showing that haircuts on many Treasury repo transactions are low or zero has raised concerns that margining practices ...
Discussion Paper
The $12 Trillion US Repo Market: Evidence from a Novel Panel of Intermediaries
The U.S. repurchase agreement (repo) market is one of the world's most important financial markets, yet it remains surprisingly opaque. Existing estimates of the size of this market often rely on data from either a subset of participants or of market segments.