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Journal Article
A History of Large-Scale Asset Purchases before the Federal Reserve
The authors find that between 1870 and 1913, large open market purchases of Treasury securities made by the U.S. Treasury Department narrowed the yield spread between Treasury bonds with high interest rate risk (the risk of an investment?s value changing on account of interest rate changes) and those with low interest rate risk.
Working Paper
Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds
This paper analyzes a new stylized fact: The correlation between uncertainty shocks and changes in inflation expectations has declined and turned negative over the past quarter century. It rationalizes this fact within a standard New Keynesian model with a lower bound on interest rates combined with a decline in the natural rate of interest. With a lower natural rate, the likelihood of the lower bound binding increased and the effects of uncertainty on the economy became more pronounced. In such an environment, increases in uncertainty raise the possibility that the central bank will be ...
Discussion Paper
The Private Premium in Public Bonds?
In a 2012 New York Fed study, Chenyang Wei and I find that interest rate spreads on publicly traded bonds issued by companies with privately traded equity are about 31 basis points higher on average than spreads on bonds issued by companies with publicly traded equity, even after controlling for risk and other factors. These differences are economically and statistically significant and they persist in the secondary market. We control for many factors associated with bond pricing, including risk, liquidity, and covenants. Although these controls account for some of the absolute pricing ...
The Pandemic's Impact on Municipal Bonds
Higher state and local expenditures related to COVID-19, a delayed tax-filing deadline and a lack of liquidity roiled the muni bond market in the early months of the pandemic.
Speech
The Federal Reserve’s Corporate Credit Facilities: Why, How, and For Whom
Remarks at The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (delivered via videoconference).
Newsletter
Catastrophe Bonds: A Primer and Retrospective
Since 1997, the catastrophe (CAT) bond market has provided the insurance industry with protections against natural disasters that have grown more frequent and costly. This article explains how CAT bonds work, and then looks at how the market for them has grown in size, coverage, and sophistication over the past two decades. It also explores how and why different types of institutions use CAT bonds to transfer insurance risks.
Discussion Paper
What Can We Learn from Prior Periods of Low Volatility?
Volatility, a measure of how much financial markets are fluctuating, has been near its record low in many asset classes. Over the last few decades, there have been only two other periods of similarly low volatility: in May 2013, and prior to the financial crisis in 2007. Is there anything we can learn from the recent period of low volatility versus what occurred slightly more than one year ago and seven years ago? Probably; the current volatility environment appears quite similar to the one in May 2013, but it?s substantially different from what happened prior to the financial crisis.
Newsletter
Why Do Bond Prices and Interest Rates Move in Opposite Directions?
Bonds. Just bonds. This November 2023 issue of Page One Economics helps learners navigate the world of purchasing, holding, and selling bonds. In addition to the basics, students will learn that the bond market, where existing bonds are bought and sold, creates a situation where bond prices and interest rates move in opposite directions.
Discussion Paper
The Rapidly Changing Nature of Japan’s Public Debt
Japan’s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan’s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance ...
Journal Article
The Fed’s Yield-Curve-Control Policy
The recent global financial crisis left governments in many advanced countries with very heavy debt burdens and their central banks with huge portfolios of government bonds. With many central banks today still facing policy rates that are uncomfortably close to zero, some may follow the example of Japan, which recently added a new long-term interest rate target to its short-term target to give itself ?yield-curve control.? The Federal Reserve?s foray into similar territory around the Second World War suggests that combining yield-curve control with quantitative easing when government ...