Search Results
Journal Article
The introduction of the TMPG fails charge for U.S. Treasury securities
The TMPG fails charge for U.S. Treasury securities provides that a buyer of Treasury securities can claim monetary compensation from the seller if the seller fails to deliver the securities on a timely basis. The charge was introduced in May 2009 and replaced an existing market convention of simply postponing?without any explicit penalty and at an unchanged invoice price?a seller?s obligation to deliver Treasury securities if the seller fails to deliver the securities on a scheduled settlement date. This article explains how a proliferation of settlement fails following the insolvency of ...
Report
All-to-All Trading in the U.S. Treasury Market
Although the U.S. Treasury market remains the deepest and most liquid securities market in the world, several episodes of market dysfunction over recent years have brought the market’s resilience into focus. The adoption of all-to-all trading in the Treasury market could be one avenue to strengthening market resilience. Conceptually, all-to-all trading would allow any market participant to trade directly with any other market participant. This could be helpful in times of stress when the capacity of traditional intermediaries may be tested. In this article, we discuss what all-to-all ...
Discussion Paper
Are There Too Many Ways to Clear and Settle Secured Financing Transactions?
The New York Fed’s Treasury Market Practices Group (TMPG) recently released a consultative white paper on clearing and settlement processes for secured financing trades (SFT) involving U.S. Treasury securities. The paper describes the many ways that Treasury SFTs are cleared and settled— information that may not be readily available to all market participants. It also identifies potential risk and resiliency issues, and so promotes discussion about whether current practices have room for improvement. This work is timely given the SEC’s ongoing efforts to improve transparency and lower ...
Discussion Paper
The Global Dash for Cash in March 2020
The economic disruptions associated with the COVID-19 pandemic sparked a global dash-for-cash as investors sold securities rapidly. This selling pressure occurred across advanced sovereign bond markets and caused a deterioration in market functioning, leading to a number of central bank actions. In this post, we highlight results from a recent paper in which we show that these disruptions occurred disproportionately in the U.S. Treasury market and offer explanations for why investors’ selling pressures were more pronounced and broad-based in this market than in other sovereign bond markets.
Report
The Netting Efficiencies of Marketwide Central Clearing
Market disruptions in response to the COVID pandemic spurred calls for the consideration of marketwide central clearing of Treasury securities, which might better enable dealers to intermediate large customer trading flows. We assess the netting efficiencies of increased central clearing using nonpublic Treasury TRACE transactions data. We find that central clearing of all outright trades would have lowered dealers’ daily gross settlement obligations by roughly $330 billion (60 percent) in the weeks preceding and following the market disruptions of March 2020, but nearly $800 billion (70 ...
Journal Article
Mortgage refinancing and the concentration of mortgage coupons
Because of the concentrated distribution of interest rates on outstanding mortgages, modest interest rate declines in 1997 and 1998 made refinancing a smart choice for a record number of homeowners. In addition, the strong economy and the age of mortgage loans likely contributed to the surge in refinancing activity.
Discussion Paper
Characterizing the Rising Settlement Fails in Seasoned Treasury Securities
In a 2014 post, we described what settlement fails are, why they arise and matter, and how they can be measured. A subsequent post explored the determinants of the increased volume of U.S. Treasury security settlement fails in June 2014. Part of that episode reflected a steady increase in settlement fails of seasoned securities. In this post, we explore the characteristics of seasoned fails in recent years, in order to better understand the risks associated with such fails.
Report
Expected repo specialness costs and the Treasury auction cycle
Repo rates for the most recently issued or "on-the-run" securities often diverge from general repo rates. The purpose of this study is to convey that relatively sizable divergences in repo rates for on-the-run issues are normal repeating events for the Treasury market, rather than evidence of abnormal circumstances. The costs associated with these repo market premia are small for short holding periods and are sometimes offset by gains from declining cash market premia for longer holding periods. Moreover, repo specialness costs seem small when considered against the alternative of not ...
Report
The Global Dash for Cash: Why Sovereign Bond Market Functioning Varied across Jurisdictions in March 2020
As the economic disruptions associated with the COVID-19 pandemic increased in March 2020, there was a global dash-for-cash by investors. This selling pressure occurred across advanced sovereign bond markets and caused a deterioration in market functioning, leading to central bank interventions. We show that these market disruptions occurred disproportionately in the U.S. Treasury market and were due to investors’ selling pressures being far more pronounced and broad-based. Furthermore, we assess differences in key drivers of the market disruptions across sovereign bond markets, based on an ...