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22 posts from February 2016

February 12, 2016

Just Released: Household Debt Grew Slowly in 2015 as Mortgage Balances Stayed Flat



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This morning, New York Fed President William Dudley spoke to the press about the growing resilience of the U.S. household sector. His speech was followed by a briefing by New York Fed economists on developments in household borrowing. Their presentation included a detailed decomposition on mortgage borrowing and payment trends, and some new research on how borrowing has evolved differently across age groups. Today, the New York Fed also released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2015. The report, the press briefing , and the following analysis are all based on the New York Fed Consumer Credit Panel, which is itself based on consumer credit data from Equifax.

Continue reading "Just Released: Household Debt Grew Slowly in 2015 as Mortgage Balances Stayed Flat" »

Posted by Blog Author at 10:05 AM in Household Finance, Housing, Mortgages | Permalink | Comments (1)

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



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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)

February 11, 2016

Is Treasury Market Liquidity Becoming More Concentrated?



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In an earlier post, we showed that Treasury market liquidity appears reasonably good by historical standards. That analysis focused on the most liquid benchmark securities, largely because data availability is best for those securities. However, some studies, such as this one and this one, report that market liquidity is concentrating in the most liquid securities at the expense of the less liquid, so that looking only at the benchmark securities gives a misleading impression. In this post, I look at trading volume information reported by the Federal Reserve to test whether liquidity is becoming more concentrated.

Continue reading "Is Treasury Market Liquidity Becoming More Concentrated?" »

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

February 10, 2016

Further Analysis of Corporate Bond Market Liquidity



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Our earlier analyses from last October and earlier in this series looked at market liquidity measures averaged across all corporate bonds or broad sub-groups of corporate bonds. Commentators have pointed out that such broad averages might mask important differences among narrower sub-groups of bonds and that relatively illiquid bonds, in particular, have suffered the largest reductions in liquidity. In this post, we consider these arguments by examining how corporate bond market liquidity has changed over time depending on the size and credit rating of the issue.

Continue reading "Further Analysis of Corporate Bond Market Liquidity" »

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

February 09, 2016

Corporate Bond Market Liquidity Redux: More Price-Based Evidence



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In a recent post, we presented some preliminary evidence suggesting that corporate bond market liquidity is ample. That evidence relied on bid-ask spread and price impact measures. The findings generated significant discussion, with some market participants wondering about the magnitudes of our estimates, their robustness, and whether such measures adequately capture recent changes in liquidity. In this post, we revisit these measures to more thoroughly document how they have varied over time and the importance of particular estimation approaches, trade size, trade frequency, and the dichotomy between investment-grade and high-yield bonds.

Continue reading "Corporate Bond Market Liquidity Redux: More Price-Based Evidence" »

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

February 08, 2016

Has MBS Market Liquidity Deteriorated?



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Mortgage-backed securities guaranteed by the government-backed entities Fannie Mae, Freddie Mac, and Ginnie Mae, or so-called “agency MBS,” are the primary funding source for U.S. residential housing. A significant deterioration in the liquidity of the MBS market could lead investors to demand a premium for transacting in this important market, ultimately raising borrowing costs for U.S. homeowners. This post looks for evidence of changes in agency MBS market liquidity, complementing similar posts studying liquidity in U.S. Treasury and corporate bond markets.

Continue reading "Has MBS Market Liquidity Deteriorated?" »

Posted by Blog Author at 7:02 AM in Financial Markets, Housing, Liquidity | Permalink | Comments (0)

Continuing the Conversation on Liquidity



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Market participants and policymakers have 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 financial capital, which is a catalyst for sustainable economic growth. Any possible decline in market liquidity, whether due to regulation or otherwise, is of interest to policymakers and market participants alike.

Continue reading "Continuing the Conversation on Liquidity" »

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

February 05, 2016

Crisis Chronicles: The Long Depression and the Panic of 1873



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It always seemed to come down to railroads in the 1800s. Railroads fueled much of the economic growth in the United States at that time, but they required that a great deal of upfront capital be devoted to risky projects. The panics of 1837 and 1857 can both be pinned on railroad investments that went awry, creating enough doubt about the banking system to cause pervasive bank runs. The fatal spark for the Panic of 1873 was also tied to railroad investments—a major bank financing a railroad venture announced that it would suspend withdrawals. As other banks started failing, consumers and businesses pulled back and America entered what is recorded as the country’s longest depression.

Continue reading "Crisis Chronicles: The Long Depression and the Panic of 1873" »

Posted by Blog Author at 7:00 AM in Crisis, Crisis Chronicles , Economic History, Financial Institutions, Inflation, Panic, Unemployment | Permalink | Comments (1)

February 04, 2016

How Do Central Bank Balance Sheets Change in Times of Crisis?



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The 2007-09 financial crisis, and the monetary policy response to it, have greatly increased the size of central bank balance sheets around the world. These changes were not always well understood and some were controversial. We discuss these crisis-induced changes, following yesterday’s post on the composition of central bank balance sheets in normal times, and explain the policy intentions behind some of them.


Continue reading "How Do Central Bank Balance Sheets Change in Times of Crisis?" »

Posted by Blog Author at 7:00 AM in Central Bank, Exchange Rates, Monetary Policy | Permalink | Comments (0)

February 03, 2016

What Is the Composition of Central Bank Balance Sheets in Normal Times?



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There has been unusually high activity on central banks’ balance sheets in recent years. This activity, which has expanded beyond the core operations and collateral of the central bank, has been called “unconventional,” “nonstandard,” “nontraditional,” and “active.” But what constitutes a normal central bank balance sheet? How does central bank asset and liability composition vary across countries and how did the crisis change this composition? In this post, we focus on the main characteristics of central bank balance sheets before the crisis. In our next piece, we describe how this composition has changed in response to the crisis.


Continue reading "What Is the Composition of Central Bank Balance Sheets in Normal Times?" »

Posted by Blog Author at 7:00 AM in Central Bank, Exchange Rates, Monetary Policy | Permalink | Comments (2)

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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.

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