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Discussion Paper
Has U.S. Treasury Market Liquidity Deteriorated?
The issue of financial market liquidity has received tremendous attention lately. This partly arises from market participants' concerns that regulatory and structural changes have reduced dealers' market making abilities, but also from events such as the taper tantrum and the flash rally, in which Treasury prices fluctuated sharply amid seemingly little news. But is there really evidence of a sustained reduction in Treasury market liquidity?
Discussion Paper
Primary Dealer Participation in the Secondary U.S. Treasury Market
The recent Joint Staff Report on October 15, 2014, exploring an episode of unprecedented volatility in the U.S. Treasury market, revealed that primary dealers no longer account for most trading volume on the interdealer brokerage (IDB) platforms. This shift is noteworthy because dealers contribute to long-term liquidity provision via their willingness to hold positions across days. However, a large share of Treasury security trading occurs elsewhere, in the dealer-to-customer (DtC) market. In this post, we show that primary dealers maintain a majority share of secondary market trading volume ...
Discussion Paper
What’s behind the March Spike in Treasury Fails?
U.S. Treasury security settlement fails?whereby market participants are unable to make delivery of securities to complete transactions?spiked in March 2016 to their highest level since the financial crisis. As noted in this post, fails delay the settlement of transactions and can therefore lead to illiquidity, create operational risk, and increase counterparty credit risk. Fails in the Treasury market attract particular attention because of the market?s key role for global investors as a pricing benchmark, hedging instrument, and reserve asset. So what drove the March spike? In this post, we ...
Speech
The Federal Reserve’s Pandemic Response
Remarks at Union of Arab Banks Webinar: Global Banking in Light of COVID-19 and Geopolitical Development (delivered via videoconference).
Speech
The Fed’s Emergency Facilities: Usage, Impact, and Early Lessons
Remarks at Hudson Valley Pattern for Progress (delivered via videoconference).
Speech
The Federal Reserve’s Market Functioning Purchases: From Supporting to Sustaining
Remarks at SIFMA Webinar.
Discussion Paper
Explaining the Puzzling Behavior of Short-Term Money Market Rates
Since 2008, the Federal Reserve has dramatically increased the supply of bank reserves, effectively adopting a floor system for monetary policy implementation. Since then, the behavior of short-term money market rates has been at times puzzling. In particular, short-term rates have been surprisingly firm in recent months, despite the large increase in reserves by the Fed as a part of its response to the coronavirus pandemic. In this post, we provide evidence that both the supply of reserves and the supply of short-term Treasury securities are important factors for explaining short-term rates.
Discussion Paper
How Does the Liquidity of New Treasury Securities Evolve?
In a recent Liberty Street Economics post, we showed that the newly reintroduced 20-year bond trades less than other on-the-run Treasury securities and has similar liquidity to that of the more interest‑rate‑sensitive 30-year bond. Is it common for newly introduced securities to trade less and with higher transaction costs, and how does security trading behavior change over time? In this post, we look back at how liquidity evolved for earlier reintroductions of Treasury securities so as to gain insight into how liquidity might evolve for the new 20-year bond.
Speech
Creating Opportunity out of Crisis: Extending Access to the Fed’s Emergency Facilities
Remarks at the The National Association of Securities Professionals’ 15th Annual Legislative Symposium (delivered via videoconference).