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Discussion Paper
The Dynamics of the U.S. Overnight Triparty Repo Market
The overnight segment of the triparty repurchase agreement (repo) market plays a pivotal role in the normal functioning of the U.S. financial system by acting as an important source of secured short-term funding and supporting the liquidity of key fixed income markets, including U.S. Treasury and agency securities. This over-the-counter market accounts for over $1 trillion in daily transactions and provides a unique venue in which a diverse set of market participants invest their cash as well as obtain short-term funding.
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 ...
What drives mortgage rates and their response to monetary policy changes
Mortgage rates are an important channel for monetary policy pass-through. However, this channel is complex.
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 ...
Domestic banks are inelastic providers of marginal funding to repo markets
As system liquidity declines and rates of return rise, new types of participants enter repo markets as lenders, although some may not be able to reliably deploy cash in the early morning when markets are most active. The short tenor and early-morning timing of most private market repo transactions make domestic banks especially inelastic lenders in response to unanticipated demands for lending
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.
Rising hedge fund leverage affects monetary policy implementation
The structure of the Treasury and repurchase agreement (repo) markets has changed over the past decade in ways that alter how administered rates pass through to market rates.
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.