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143 posts on "Financial Markets"

January 15, 2016

Crisis Chronicles: The Gold Panic of 1869, America’s First Black Friday



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Wall Street in the late 1860s was a bare-knuckles affair plagued by robber barons, political patronage, and stock manipulation. In perhaps the most scandalous instance of manipulation ever, a cabal led by Jay Gould, a successful but ruthless railroad executive and speculator, and several highly placed political contacts, conspired to corner the gold market. Although ultimately foiled, they succeeded in bankrupting several venerable brokerage houses and crashing the stock market, causing America’s first Black Friday.

Continue reading "Crisis Chronicles: The Gold Panic of 1869, America’s First Black Friday" »

Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History, Financial Markets | Permalink | Comments (3)

January 04, 2016

Characterizing the Rising Settlement Fails in Seasoned Treasury Securities



In a 2014 post, we described what settlement fails are, why they arise and matter, and how they can be measured. A subsequent post explored the determinants of the increased volume of U.S. Treasury security settlement fails in June 2014. Part of that episode reflected a steady increase in settlement fails of seasoned securities. In this post, we explore the characteristics of seasoned fails in recent years, in order to better understand the risks associated with such fails.


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

December 07, 2015

Dealer Positioning and Expected Returns



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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" »

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

December 04, 2015

At the New York Fed: Conference on the Evolving Structure of the U.S. Treasury Market



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The New York Fed recently hosted a two-day conference on the evolving structure of the U.S. Treasury market, co-sponsored with the U.S. Department of the Treasury, the Federal Reserve Board, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission. The events of October 15, 2014, when yields experienced an unusually high level of volatility and a rapid round-trip in prices without a clear cause, underscored the need to better understand the factors that affect the liquidity and functioning of this important market.

Continue reading "At the New York Fed: Conference on the Evolving Structure of the U.S. Treasury Market" »

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

November 16, 2015

Should Monetary Policy Respond to Financial Conditions?



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There’s an ongoing debate about whether policymakers should respond to financial conditions when setting monetary policy. An argument is often made that financial stability concerns are more appropriately dealt with by using regulatory and macroprudential tools. This post offers a theoretical justification for policymakers to monitor and possibly respond to financial conditions not because this would lessen concerns about financial stability but because this information helps reveal the state of the economy and the appropriate stance of monetary policy.

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Posted by Blog Author at 7:00 AM in Financial Markets, Household Finance, Monetary Policy | Permalink | Comments (0)

November 09, 2015

The New Overnight Bank Funding Rate



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The Federal Reserve Bank of New York will begin publishing the overnight bank funding rate (OBFR) sometime in the first few months of 2016. The OBFR will be a broad measure of U.S. dollar funding costs for U.S.-based banks as it will be calculated using both fed funds and Eurodollar transactions, as reported in a new data collection—the FR 2420 Report of Selected Money Market Rates. In a recent post, “The Eurodollar Market in the United States,” we described the Eurodollar activity of U.S.-based banks and compared recent fed funds and Eurodollar rates. Here, we look at the historical relationship between overnight fed funds and Eurodollars and compare the new OBFR rate to the fed funds rate.


Continue reading "The New Overnight Bank Funding Rate" »

Posted by Blog Author at 7:00 AM in Financial Markets, Household Finance, Monetary Policy | Permalink | Comments (2)

October 19, 2015

The Tri-Party Repo Market Like You Have Never Seen It Before



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The tri-party repo market is a large and important market where securities dealers find a substantial amount of short-term funding. Despite its importance, this market was very opaque before the crisis. Since March 2010, in accordance with recommendation 13 of the Task Force on Tri-Party Repo Infrastructure Reform report, the Federal Reserve Bank of New York has made monthly data on the tri-party repo market available to the public. Today, with our new interactive tool, there is a whole new way to view the market and its evolution. You can make your own charts, looking at volumes for specific asset classes, at haircuts, or at concentration, over your preferred time horizon.

Continue reading "The Tri-Party Repo Market Like You Have Never Seen It Before" »

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments (1)

October 14, 2015

Dealers’ Positions and the Auction Cycle



The aftermath of the financial crisis and changes in technology and regulation have spurred a spirited discussion of dealers’ evolving role in financial markets. One such role is to buy securities at auction and sell them off to investors over time. We assess this function using data on primary dealers’ positions in benchmark Treasury securities, released by the New York Fed since April 2013 and described in this earlier Liberty Street Economics post.

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

October 09, 2015

The Liquidity Mirage



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Sixth in a six-part series

Market efficiency is often pointed to as a main benefit of automated and high-frequency trading (HFT) in U.S. Treasury markets. Fresh information arriving in the market place is reflected in prices almost instantaneously, ensuring that market makers can maintain tight spreads and that consistent pricing of closely related assets generally prevails. While the positive developments in market functioning due to HFT have been widely acknowledged, we argue that the (price) efficiency gain comes at the cost of making the real-time assessment of market liquidity across multiple venues more difficult. This situation, which we term the liquidity mirage, arises because market participants respond not only to news about fundamentals but also market activity itself. This can lead to order placement and execution in one market affecting liquidity provision across related markets almost instantly. The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market.

Continue reading "The Liquidity Mirage " »

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments (3)

October 08, 2015

Redemption Risk of Bond Mutual Funds and Dealer Positioning



Fifth in a six-part series
Market participants have recently voiced concerns that bond markets seem to become illiquid precisely when they want to sell bonds. Some possible reasons for a decline in corporate bond market liquidity in times of stress include the increasing share of corporate bond ownership by mutual funds and the reduced share of corporate bond ownership by dealers. In this post, we examine the potential effects of outflows from bond mutual funds and the role of dealers’ positioning in corporate bonds.

Continue reading "Redemption Risk of Bond Mutual Funds and Dealer Positioning" »

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