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Discussion Paper
Insights from revised Form FR2004 into primary dealer securities financing and MBS activity
The Primary Government Securities Dealers Reports (Form FR 2004) collect information at a weekly frequency on daily positions, cumulative transactions, financing, and fails of primary dealers in U.S. government and other fixed-income securities. The reports have been revised as of January 5, 2022 to increase the granularity of reporting.
Working Paper
Liquidity risk and hedge fund ownership
Using a unique, hand-collected data set of hedge fund ownership, we examine the effects of hedge fund ownership on liquidity risk in the cross-section of stocks. After controlling for institutional preferences for stock characteristics, we find that stocks held by hedge funds as marginal investors are more sensitive to changes in aggregate liquidity than comparable stocks held by other types of institutions or by individuals. Stocks held by hedge funds also experience significantly negative abnormal returns during liquidity crises. These findings support the theory of Brunnermeier and ...
Discussion Paper
Sizing hedge funds' Treasury market activities and holdings
Hedge funds play an increasingly important role in U.S. Treasury (UST) cash and futures markets, a role that has been widely discussed following the March 2020 U.S. Treasury sell-off. In this note, we analyze hedge funds' holdings of UST securities and their UST market activities in normal times and in times of financial market stress using regulatory data from the SEC Form PF.
Working Paper
Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis
Hedge fund gross U.S. Treasury (UST) exposures doubled from 2018 to February 2020 to $2.4 trillion, primarily driven by relative value arbitrage trading and supported by corresponding increases in repo borrowing. In March 2020, amid unprecedented UST market turmoil, the average UST trading hedge fund had a return of -7% and reduced its UST exposure by close to 20%, despite relatively unchanged bilateral repo volumes and haircuts. Analyzing hedge fund-creditor borrowing data, we find the large, more regulated dealers provided disproportionately more funding during the crisis than other ...
Discussion Paper
Non-bank financial institutions and the slope of the yield curve
In this note, we examine how changes in the yield curve slope affect the provision of credit and intermediation services by non-bank financial institutions (NBFIs), including broker-dealers and hedge funds. Although these NBFIs typically do not lend directly to the non-financial sector, they indirectly support the flow of credit by investing in debt securities and extending financing to investors who own such securities.
Discussion Paper
Dealers' Treasury Market Intermediation and the Supplementary Leverage Ratio
Treasury market intermediation by dealers, including Treasury securities market making and financing, requires regulatory capital. In particular, the six largest U.S. Treasury securities dealers are subsidiaries of large U.S. bank holding companies (BHCs), which are required to maintain a supplementary leverage ratio (SLR) of at least 5 percent at the BHC level.
Working Paper
Hedge fund holdings and stock market efficiency
We examine the relation between changes in hedge fund stock holdings and measures of informational efficiency of equity prices derived from transactions data, and find that, on average, increased hedge fund ownership leads to significant improvements in the informational efficiency of equity prices. The contribution of hedge funds to price efficiency is greater than the contributions of other types of institutional investors, such as mutual funds or banks. However, stocks held by hedge funds experienced extreme declines in price efficiency during liquidity crises, most notably in the last ...
Discussion Paper
Quantifying Treasury Cash-Futures Basis Trades
The Treasury cash-futures basis trade exploits the difference in prices between a Treasury security and a related Treasury futures contract – the so-called cash-futures basis – by purchasing the asset that is relatively undervalued and selling the other in a bet that the prices will converge. Basis traders support Treasury market functioning by keeping the prices of Treasury futures near their fair value relative to Treasury securities and by serving as an important source of demand for Treasury securities, including during the 2017-2019 period of quantitative tightening when basis ...
Discussion Paper
The Effects of FOMC Communications before Policy Tightening in 1994 and 2004
The ways in which the Federal Open Market Committee (FOMC or "Committee") communicates its views on economic and financial conditions, the economic outlook, and its policy intentions have evolved over time.
Discussion Paper
Why Do Mutual Funds Invest in Treasury Futures?
Asset managers’ net long positions in Treasury futures have reached their historical highs in recent months, driven in part by mutual funds’ demand for short- and medium-term Treasury futures. Analyzing mutual fund portfolio holdings reports on SEC Form N-PORT, we find that the increase in mutual funds’ futures holdings since 2020 can be attributed to both increased demand for Treasury exposures during a higher interest rate environment and mutual funds’ preference for sourcing these exposures through futures rather than securities.