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10 posts on "Dealers"

December 19, 2016

Investigating the Proposed Overnight Treasury GC Repo Benchmark Rates



Editor’s note: In the data file originally released with this post, some repo volume figures were misaligned with their dates; the problem has been corrected. (December 19, 11:15 a.m.)

LSE_Investigating the Proposed Overnight Treasury GC Repo Benchmark Rates

In its recent “Statement Regarding the Publication of Overnight Treasury GC Repo Rates,” the Federal Reserve Bank of New York, in cooperation with the U.S. Treasury Department’s Office of Financial Research, announced the potential publication of three overnight Treasury general collateral (GC) repurchase (repo) benchmark rates. Each of the proposed rates is designed to capture a particular segment of repo market activity. All three rates, as currently envisioned, would initially be based on transaction-level overnight GC repo trades occurring on tri-party repo platforms. The first rate would only include transactions in the tri-party repo market, excluding both General Collateral Finance Repo Service, or GCF Repo®, transactions and Federal Reserve transactions. (GCF Repo is a registered service mark of the Fixed Income Clearing Corporation.) Henceforth in this post, this segment will be referred to as tri-party ex-GCF/Fed. The second rate would build on the first by including GCF Repo trading activity while still excluding Federal Reserve transactions. Finally, the third rate would include tri-party ex-GCF/Fed transactions, GCF Repo transactions, and Federal Reserve transactions. The repo benchmark rates would be calculated as volume-weighted medians, as is currently the case for the production of the effective federal funds rate (EFFR) and the overnight bank funding rate (OBFR), and would be accompanied by summary statistics. The three proposed rate compositions result from staff analysis on the various market segments and characteristic trading behavior, though the New York Fed expects to work with the Board of Governors of the Federal Reserve System to seek public comment on the composition and calculation methodology for these rates before adopting a final publication plan.

Continue reading "Investigating the Proposed Overnight Treasury GC Repo Benchmark Rates" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Institutions | Permalink | Comments (2)

May 04, 2016

Why Dealers Trade in GCF Repo®



Editors’ note: The original version of this post had the terms “borrowers” and lenders” reversed and had some figures wrong. The corrected figures do not suggest, as before, that dealers who switch between borrowing and lending are pursing collateral swapping strategies. We regret the error. (August 16)

LSE_2016_GCF-repo-series-3_460_art


In this post, the third in a series on GCF Repo®, we describe dealers’ trading strategies. We show that most dealers exhibit highly regular strategies, using the GCF Repo service either to borrow or to lend, on net, on almost all the days in which they are active. Moreover, dealers’ strategies are highly persistent over time: Dealers that use GCF Repo to borrow (or to lend) in a given quarter are highly likely to continue to do so in the following quarter. Understanding how dealers trade in the GCF Repo market may provide insight about the role of the repo market more generally and about how recent regulations and market reforms can affect dealers’ trading strategies.

Continue reading "Why Dealers Trade in GCF Repo®" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Institutions, Financial Markets | Permalink | Comments (0)

February 12, 2016

Primary Dealer Participation in the Secondary U.S. Treasury Market



LSE_liquidity_460x288px_06

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 when DtC trading is taken into account. We also use survey data on large dealers to characterize activity in the DtC market and discuss some of the gaps in the available Treasury trading volume data.

Continue reading "Primary Dealer Participation in the Secondary U.S. Treasury Market" »

Posted by Blog Author at 7:00 AM in Dealers, Treasury | Permalink | Comments (0)

December 07, 2015

Dealer Positioning and Expected Returns



LSE_2015_dealer-positioning_adrian_460_art

Securities broker-dealers (dealers) trade securities on behalf of their customers and themselves. Recently, analysts have pointed to the decline in U.S. dealers’ corporate bond inventories as evidence that dealers’ market making capacity is impaired. However, historically such inventories also reflect dealers’ risk management and proprietary trading activities. In this post, we take a long-term perspective on the evolution of dealers’ inventories of corporate bonds, Treasuries, and other debt securities and relate those inventories to expected returns in fixed-income markets in an effort to better understand the drivers of dealer positioning.


Continue reading "Dealer Positioning and Expected Returns" »

October 05, 2015

Has U.S. Corporate Bond Market Liquidity Deteriorated?



First in a six-part series
Commentators have argued that market liquidity has deteriorated in recent years as regulatory changes have reduced banks’ ability and willingness to make markets. In the corporate debt market, dealer positions, which are considered essential to good liquidity, have indeed declined, even as issuance and outstanding debt have increased. But is there evidence of reduced market liquidity? In previous posts, we discussed these issues in the context of the U.S. Treasury securities market. In this post, we focus on the U.S. corporate bond market, reviewing both price- and quantity-based liquidity measures, including trading volume, trade size, bid-ask spreads, and price impact.

Continue reading "Has U.S. Corporate Bond Market Liquidity Deteriorated?" »

Posted by Blog Author at 11:02 AM in Dealers, Financial Institutions, Financial Markets, Liquidity | Permalink | Comments (4)

Introduction to a Series on Market Liquidity: Part 2



Research_fp_liquidity_460x288px

Market participants and policymakers have raised concerns about the potential adverse effects of financial regulation on market liquidity—the ability to buy and sell securities quickly, at any time, at minimal cost. Market liquidity supports the efficient allocation of capital through financial markets, which is a catalyst for sustainable economic growth. Changes in market liquidity, whether due to regulation or other forces, are therefore of great interest to policymakers and market participants alike.

Continue reading "Introduction to a Series on Market Liquidity: Part 2" »

Posted by Blog Author at 11:00 AM in Dealers, Financial Markets, Liquidity, Regulation | Permalink | Comments (0)

August 17, 2015

Introduction to a Series on Market Liquidity



LSE_2015_liquidity-series-august-450_art

Market participants and policymakers have recently raised concerns about market liquidity—the ability to buy and sell securities quickly, at any time, at minimal cost. Market liquidity supports the efficient allocation of capital through financial markets, which is a catalyst for sustainable economic growth. Changes in market liquidity, whether due to regulation, changes in market structure, or otherwise, are therefore of great interest to policymakers and market participants alike.

Continue reading "Introduction to a Series on Market Liquidity" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Markets, Liquidity, Regulation | Permalink | Comments (0)

July 20, 2015

Have Dealers' Strategies in the GCF Repo© Market Changed?



In a previous post, “Mapping and Sizing the U.S. Repo Market,” our colleagues described the structure of the U.S. repurchase agreement (repo) market. In this post, we consider whether recent regulatory changes have changed the behavior of securities broker-dealers, who play a significant role in repo markets. We focus on the General Collateral Finance (GCF) Repo market, an interdealer market primarily using U.S. Treasury and agency securities as collateral. We find that some dealers use GCF Repo as a substantial source of funding for their inventories, while others primarily use GCF Repo to fine-tune their repo positions. Recent regulatory changes, such as the supplementary leverage ratio (SLR), may be contributing to reduced lending in the GCF Repo market.

Continue reading "Have Dealers' Strategies in the GCF Repo© Market Changed?" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Institutions, Financial Markets | Permalink | Comments (0)

October 16, 2013

Dealer Balance Sheet Capacity and Market Liquidity during the 2013 Selloff in Fixed-Income Markets

Tobias Adrian, Michael Fleming, Jonathan Goldberg, Morgan Lewis, Fabio Natalucci, and Jason Wu

Long-term interest rates hit record-low levels in 2012 but have since increased substantially. As discussed in an earlier post, the sharpest increase occurred between May 2 and July 5 of this year, with the ten-year Treasury yield rising from 1.63 percent to 2.74 percent. During the May-July episode, market liquidity also deteriorated. Some market participants have suggested that constraints on dealer balance sheet capacity impaired liquidity during the selloff, amplifying the magnitude and speed of the rise in interest rates and volatility. In this post, we review the evolution of Treasury market liquidity, evaluate whether dealer balance sheet capacity amplified the selloff, and examine what motivated dealer behavior during the episode.

Continue reading "Dealer Balance Sheet Capacity and Market Liquidity during the 2013 Selloff in Fixed-Income Markets" »

February 20, 2013

Primary Dealers’ Waning Role in Treasury Auctions

Michael Fleming and Sean Myers

On December 12, 2012, primary government securities dealers bought just 33 percent of the new ten-year Treasury notes sold at auction. This was one of the lowest shares on record and far below the 68 percent average for ten-year notes reported in this 2007 study by Fleming. In this post, we examine recent data on the buyers of Treasury securities at auction to understand whether the December 12 results are part of a trend and, if so, what explains it.

Continue reading "Primary Dealers’ Waning Role in Treasury Auctions" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Markets, Treasury | Permalink | Comments (2)
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