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288 posts on "Financial Markets"
March 8, 2024

Stablecoins and Crypto Shocks

Decorative photo of computer board with "stable coin" letters embedded.

In a previous post, we described the rapid growth of the stablecoin market over the past few years and then discussed the TerraUSD stablecoin run of May 2022. The TerraUSD run, however, is not the only episode of instability experienced by a stablecoin. Other noteworthy incidents include the June 2021 run on IRON and, more recently, the de-pegging of USD Coin’s secondary market price from $1.00 to $0.88 upon the failure of Silicon Valley Bank in March 2023. In this post, based on our recent staff report, we consider the following questions: Do stablecoin investors react to broad-based shocks in the crypto asset industry? Do the investors run from the entire stablecoin industry, or do they engage in a flight to safer stablecoins? We conclude with some high-level discussion points on potential regulations of stablecoins. 

February 12, 2024

Measuring Treasury Market Depth

Decorative Image: image of 3 United States Savings Bonds.

A commonly used measure of market liquidity is market depth, which refers to the quantity of securities market participants are willing to buy or sell at particular prices. The market depth of U.S. Treasury securities, in particular, is assessed in many analyses of market functioning, including this Liberty Street Economics post on liquidity in 2023, this article on market functioning in March 2020, and this paper on liquidity after the Global Financial Crisis. In this post, we review the many measurement decisions that go into depth calculations and show that inferences about the evolution of Treasury market depth, and hence liquidity, are largely invariant with respect to these decisions. 

Posted at 7:00 am in Financial Markets | Permalink | Comments (1)
February 7, 2024

Racial and Ethnic Wealth Inequality in the Post‑Pandemic Era

Editor’s note: The DFA data upon which this post was based show a decline in the aggregate real wealth of Black households after 2019, as reported here. The authors are currently reviewing the data to determine whether a similar pattern exists for the typical Black household. (March 1, 3:47 pm)

Decorative illustration: 3 people on a pedestal. Whose net worth increased?

Wealth is unevenly distributed across racial and ethnic groups in the United States. In this first post in a two-part series on wealth inequality, we use the Distributional Financial Accounts (DFA) to document these disparities between Black, Hispanic, and white households from the first quarter of 2019 to the third quarter of 2023 for wealth and a variety of asset and liability categories. We find that these disparities have been exacerbated since the pandemic, likely due to rapid growth in the financial assets more often held by white individuals.

November 29, 2023

Treasury Bill Supply and ON RRP Investment

Decorative photo: close up of the words "The Treasury" on the treasury building showing the top of the columns outside the structure.

Take-up at the Federal Reserve’s Overnight Reverse Repo Facility (ON RRP) increased from a few billion dollars in January 2021 to around $2.6 trillion at the end of December 2022.  In this post, based on a recent Staff Report, we explain how the supply of U.S. Treasury bills (T-bills) affects the decision of money market mutual funds (MMFs) to invest at the facility. We show that MMFs responded to a reduction in T-bill supply by increasing their take-up at the ON RRP, helping to explain the increased overall take-up.

Posted at 7:00 am in Financial Markets | Permalink
November 28, 2023

Bond Funds in the Aftermath of SVB’s Collapse

Decorative image: Bond market screen with rising yields and interest rates

March 2023 will rightfully be remembered as a period of major turmoil for the U.S. banking industry. In this post, we go beyond banks to analyze how fixed-income, open-end funds (bond funds) fared in the days after the start of the banking crisis. We find that bond funds experienced net outflows each day for almost three weeks after the run on Silicon Valley Bank (SVB), and that these outflows were experienced diffusely across the entire segment. Our preliminary evidence suggests that the outflows from bond funds may have been an unintended consequence of the exceptional measures taken to strengthen the balance sheet of banks during this time.

Posted at 7:00 am in Banks, Financial Markets | Permalink
November 8, 2023

Blog Series on the Economic and Financial Impacts of Extreme Weather Events in the Fed’s Second District

Photo: a New York highway flooded. A highway full of stalled cars with water up to their doors.

The frequency and ferocity of extreme weather events, such as flooding, storms, and deadly heat waves, have been on the rise in recent years. These climate events, along with human adaption to cope with them, may have large effects on the economy and financial markets. It is therefore paramount to provide research about the economy’s vulnerability to climate events for policymakers, households, financial institutions, and other players in the world economy to make informed decisions. In the coming days, we are going to present a series of nine posts that attempt to take a step in this direction while focusing on the Federal Reserve System’s Second District (NY, northern NJ, southwest CT, Puerto Rico, and the U.S. Virgin Islands). The twelve Federal Reserve Districts are depicted in this map.

Posted at 7:00 am in Banks, Financial Markets, New York | Permalink
October 17, 2023

How Has Treasury Market Liquidity Evolved in 2023?

Decorative photo: close up of the words "The Treasury" on the treasury building showing the top of the columns outside the structure.

In a 2022 post, we showed how liquidity conditions in the U.S. Treasury securities market had worsened as supply disruptions, high inflation, and geopolitical conflict increased uncertainty about the expected path of interest rates. In this post, we revisit some commonly used metrics to assess how market liquidity has evolved since. We find that liquidity worsened abruptly in March 2023 after the failures of Silicon Valley Bank and Signature Bank, but then quickly improved to levels close to those of the preceding year. As in 2022, liquidity in 2023 continues to closely track the level that would be expected by the path of interest rate volatility.

Posted at 7:00 am in Financial Markets, Treasury | Permalink
October 3, 2023

A Look at Convenience Yields around the World

Decorative image: Magnifying glass over a percent sign on flattened world map background.

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 a model in which convenience yields depend on domestic financial intermediaries, but CIP deviations depend on international arbitrageurs funded with dollar debt.

Posted at 7:00 am in Financial Markets, Treasury | Permalink
October 2, 2023

Options for Calculating Risk‑Free Rates

Decorative image: Magnifying glass over a percent sign on green background.

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 S&P 500 index options—called the box rate—to measure investors’ time preference separate from Treasury convenience yields.

September 6, 2023

Leader‑Follower Dynamics in Shareholder Activism

wooden figures in triangular formation with the lead figure colored red.

Activist shareholders play a central role in modern corporations, influencing the capital structure, business strategy, and governance of firms. Such “blockholders” range from investors who actively jawbone or break up firms to index funds that are largely passive in that they limit themselves to voting. In between, however, is a key group of blockholders that have historically focused on trading but have embraced activism as an established business strategy in the past few decades. Campaigns involving such “trading” blockholders have become ubiquitous, increasingly targeting large-capitalization firms; further, their attacks feature multiple activists, each with individual stakes that, in isolation, are unable to control targets. In this post, we ask three questions: (1) How do trading activists build stakes before an attack, while anticipating that other investors may have similar incentives? (2) Does the nature of strategic trading change relative to settings where activism is unlikely to occur? (3) Are there trade-offs between trading and the firm’s long-term value?

Posted at 7:00 am in Financial Markets, Stocks | Permalink
About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

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