The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The U.S. Treasury market is one of the deepest and most liquid markets in the world, with significant trading in both Treasury futures and benchmark securities. In this post, we examine the pattern of trading activity in these instruments and document the substantial increase in cross-market trading (simultaneous order placement and execution in multiple markets) in recent years, highlighting the impact of technological advancements that allow nearly instantaneous trading across assets and trading platforms. Identifying the growing role played by high-frequency trading in U.S. Treasury markets is important for understanding the price discovery process. Our findings suggest that price discovery takes place on both futures and cash markets and that cross-market trading helps maintain the tight link between the two.
“Flash events,” extremely large price moves and reversals over just a few minutes, have occurred in some of the world’s most liquid markets in recent years. What’s made these events remarkable is that they seem to have been unrelated to any discernable fundamental economic news that may have taken place during the events. In this post, we consider a few of the important similarities and differences among three major flash events in the U.S. equities, euro–dollar foreign exchange (FX), and U.S. Treasury markets that occurred between May 2010 and March 2015. All three flash events involved high trading volumes and long-term impacts on depth, but the U.S. Treasury event stands out in terms of both price volatility and price continuity.
Tobias Adrian, Michael J. Fleming, Daniel Stackman, and Erik Vogt
First in a five-part series
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?
Tobias Adrian, Michael J. Fleming, and Ernst Schaumburg
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.
Jamie McAndrews, Jonathan McCarthy, Paolo Pesenti, Argia Sbordone, and Andrea Tambalotti
The Research Group at the New York Fed, like the research divisions at the other regional Feds, is charged with providing advice on monetary policy to the Bank president. In addition, the role of research at this institution is related to two features of the New York Fed: first, the New York Fed president is a voting member of the Federal Open Market Committee (FOMC), and second, the Open Market Desk located at the New York Fed implements the policy decisions of the FOMC. In this post, we provide a brief introduction to the process whereby research economists, collaborating with staff in the Markets Group and the Integrated Policy Analysis [IPA] Group, provide policy advice to the Bank president. Because the FOMC meeting is the focus for monetary policy advice within the Fed, our discussion of the policy process will be organized around the FOMC cycle.
Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Our Consumer Credit Panel, which is based on data from the Equifax credit reporting agency, first arrived at the New York Fed in 2009, and our very first Quarterly Report on Household Debt and Credit was published in August 2010, five years ago this month. We’ve continued to produce the same report, with very few changes, since the report’s initial release. However, with today’s release of the report for the second quarter of 2015, we’re beginning to make some changes, starting with two new charts that provide granularity on mortgage loan originations. These data are identical to the originations data that we’ve released previously, but we now report origination volume by credit score groups. The new charts’ form will be familiar to those who have seen our earlier work on auto loans or the U.S. Economy in a Snapshot, and will leverage some of the detail that we have in our dataset on new extensions of credit and underwriting standards.
Euro area sovereign bond yields fell to record lows and the euro weakened after the European Central Bank (ECB) dramatically expanded its asset purchase program in early 2015. Some analysts predicted massive financial outflows spilling out of the euro area and affecting global markets as investors sought higher yields abroad. These arguments ignore balance of payments accounting, which requires any financial outflow from the euro area to be matched by a similar-sized inflow, absent a quick and substantial current account improvement. The focus on cross-border financial flows also is misguided since, according to asset pricing principles, the euro and global asset prices can move without any change in financial outflows.
The largest U.S. financial institutions conduct business around the world, maintaining a strong presence through branches and subsidiaries in foreign countries. This blog post highlights trends in their foreign ownership over the past twenty-five years, complementing recent research from the New York Fed on large and complex banks. We document a constant decline in the importance of foreign branches for U.S. financial institutions, an increase in the complexity of foreign subsidiary networks, and a shift of activity from Latin America and the Caribbean to Europe and other regions.
In August 2007, at the onset of the recent financial crisis, the Federal Reserve encouraged banks to borrow from the discount window (DW) but few did so. This lack of DW borrowing has been widely attributed to stigma—concerns that, if discount borrowing were detected, depositors, creditors, and analysts could interpret it as a sign of financial weakness. In this post, we review the history of the DW up until 2003, when the current DW regime was established, and argue that some past policies may have inadvertently contributed to a reluctance to borrow from the DW that persists to this day.
On the crisp morning of January 24, 1848, James Marshall, a carpenter in the employ of John Sutter, traveled up the American River to inspect a lumber mill that Sutter had ordered constructed close to timber sources. Marshall arrived to find that overnight rains had washed away some of the tailrace the crew had been digging. But as Marshall examined the channel, something shiny caught his eye, and as he bent over to retrieve the object, his heart began to pound. Gold! Marshall and Sutter tried to contain the secret, but rumors soon spread to Monterey, San Francisco, and beyond—and the rush was on. In this edition of Crisis Chronicles, we describe the excitement of the California Gold Rush and explain how it constituted an inflationary shock because the United States was tied to the gold standard at the time.
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.
Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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