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Interest rate volatility contributed to higher mortgage rates in 2022
The Federal Reserve aggressively tightened monetary policy in 2022, responding to high and persistent inflation. The resulting borrowing cost increase for households and firms was generally anticipated. However, fixed-rate mortgage interest rates were especially sensitive to the policy regime change.
Commodity Financing Markets Shaken by Russian Invasion; Monitoring for U.S. Financial Stress
While volatility in commodity markets is not unusual, rapid and correlated price increases across many different types of commodities at once is much rarer.
Discussion Paper
The Cleared Bilateral Repo Market and Proposed Repo Benchmark Rates
As described in a recent statement and blog post, the Federal Reserve Bank of New York (FRBNY), in cooperation with the Office of Financial Research (OFR), is considering the publication of several new benchmark rates for overnight Treasury general collateral repurchase agreement (repo) transactions in order to enhance market transparency and efficiency by improving the quality and breadth of repo market information available to the public. This note sheds light on another important segment of the overnight repo market – the segment of the bilateral repo market cleared by FICC – based on ...
Network structure of money markets and firms affects policy transmission
Understanding the underlying network structure of money markets provides valuable insights for monitoring reserve scarcity and its evolution in response to regulatory and market changes.
How sensitive is the Treasury cash-futures basis trade to funding condition shifts?
The Treasury cash-futures basis trade, a very large, leveraged Treasury trade, has drawn scrutiny because unwinding positions amplified stress during the pandemic-era market shock of March 2020. With estimates suggesting the trade has since grown larger, attention is focused on how well it might weather future shocks.
Discussion Paper
How Competitive are U.S. Treasury Repo Markets?
The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide range of market participants. By ...
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 ...
Expanded central clearing would increase Treasury market resilience
The smooth functioning of markets for Treasury securities is critically important to the U.S. economy. The federal government relies on the sale of Treasuries to finance essential services, and the Federal Reserve uses Treasury markets to implement monetary policy.