Search Results
Showing results 1 to 6 of approximately 6.
(refine search)
Discussion Paper
Do You Know How Your Treasury Trades Are Cleared and Settled?
The Treasury Market Practices Group (TMPG) recently released a consultative white paper on clearing and settlement processes for secondary market trades of U.S. Treasury securities. The paper describes in detail the many ways Treasury trades are cleared and settled? information that may not be readily available to all market participants?and identifies potential risk and resiliency issues. The work is designed to facilitate discussion as to whether current practices have room for improvement. In this post, we summarize the current state of clearing and settlement for secondary market Treasury ...
Discussion Paper
A Look at Convenience Yields around the World
This post estimates “convenience yields” for government debt in ten of the G11 currencies based on analysis from a recent paper. As in our companion post, we measure convenience yields with option-implied box rate data that is estimated from options traded on the main stock market index in each country. We find that a country’s average convenience yield is closely related to its level of interest rates. In addition, we find that average covered interest parity (CIP) deviations are roughly the same across countries when they are measured with box rates. We rationalize these findings with ...
Discussion Paper
Options for Calculating Risk-Free Rate
One of the most fundamental concepts in finance is the notion of a risk-free rate. This interest rate tells us how much money investors are guaranteed to receive in the future by saving one dollar today. As a result, risk-free rates reflect investors’ preferences for payoffs in the future relative to the present. Yields on U.S. Treasury securities are generally viewed as a standard benchmark for the risk-free rate, but they may also feature a “convenience yield,” reflecting Treasuries’ special, money-like properties. In this post, we estimate a risk-free rate implicit in the prices of ...
Report
Reserves Were Not So Ample After All
The Federal Reserve's “balance-sheet normalization,” which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in mid-September 2019. We show that repo rates rose above efficient-market levels when the total reserve balances held at the Federal Reserve by the largest repo-active bank holding companies declined and that repo rate spikes are strongly associated with delayed intraday payments of reserves to these large ...
Discussion Paper
What Quantity of Reserves Is Sufficient?
A concern of the Federal Reserve is how to manage its balance sheet and whether, over the long run, the balance sheet should be small or large. In this post, we highlight results from a recent paper in which we show how, even during a period of “ample” reserves, the Fed’s management of its balance sheet had material impacts on funding markets and especially the repo market. We argue that the Fed’s “balance-sheet normalization” from March 2017 to September 2019—under which aggregate reserves declined by more than $950 billion—combined with post-crisis liquidity regulations, ...
Discussion Paper
What Makes a Safe Asset Safe?
Over the last decade, the concept of “safe assets” has received increasing attention, from regulators and private market participants, as well as researchers. This attention has led to the uncovering of some important details and nuances of what makes an asset “safe” and why it matters. In this blog post, we provide a review of the different aspects of safe assets, discuss possible reasons why they may be beneficial for investors, and give concrete examples of what these assets are in practice.