From the Vault: A Look Back at the October 15, 2014, Flash Rally

Michael J. Fleming, Peter Johansson, Frank M. Keane, and Justin Meyer



Five years ago today, U.S. Treasury yields plunged and then quickly rebounded for no apparent reason amid high volatility, strained liquidity conditions, and record trading volume in the market. Federal Reserve Chair Jerome Powell, then a Board governor, noted that such episodes, “threaten to erode investor confidence” and that investors need “to have full faith in the structure and functioning of Treasury markets themselves.” The October 15, 2014, “flash rally” led to an interagency staff report on the events of that day, an annual series of Treasury market conferences, additional study of clearing and settlement practices, and the introduction of a new transactions reporting scheme. Many of these developments are discussed in posts (see, for example, here and here) in the Liberty Street Economics archive.

Assessing Contagion Risk in a Financial Network

Fernando M. Duarte, Collin Jones, and Francisco Ruela

First of two posts

In compiling a list of key takeaways of the 2008 financial crisis, surely the dangers of counterparty risk would be near the top. During the crisis, speculation on which financial institution would be next to default on its obligations to creditors, and which one would come after that, dominated news cycles. Since then, there has been an explosion in research trying to understand and quantify the default spillovers that can arise through counterparty risk. This is the first of two posts delving into the analysis of financial network contagion through this spillover channel. Here we introduce a framework that is useful for thinking about default cascades, originally developed by Eisenberg and Noe.

Ten Years Later—Did QE Work?

Stephan Luck and Thomas Zimmermann




By November 2008, the Global Financial Crisis, which originated in the residential housing market and the shadow banking system, had begun to turn into a major recession, spurring the Federal Open Market Committee (FOMC) to initiate what we now refer to as quantitative easing (QE). In this blog post, we draw upon the empirical findings of post-crisis academic research–including our own work–to shed light on the question: Did QE work?

Are New Repo Participants Gaining Ground?

Adam Copeland, Ira Selig, and Anya Tarascina



Following the 2007-09 financial crisis, regulations were introduced that increased the cost of entering into repurchase agreements (repo) for bank holding companies (BHC). As a consequence, banks and securities dealers associated with BHCs, a set of firms which dominates the repo market, were predicted to pull back from the market. In this blog post, we examine whether this changed environment allowed new participants, particularly those not subject to the new regulations, to emerge. We find that although new participants have come on the scene and made gains, they remain a small part of the overall repo market.

Deciphering Americans’ Views on Cryptocurrencies

Sean Hundtofte, Michael Junho Lee, Antoine Martin, and Reed Orchinik



Having witnessed the dramatic rise and fall in the value of cryptocurrencies over the past year, we wanted to learn more about what motivates people to participate in this market. To find out, we included a special set of questions in the May 2018 Survey of Consumer Expectations, a project of the New York Fed’s Center for Microeconomic Data. This blog post summarizes the results of that survey, shedding light on U.S. consumers’ depth of participation in cryptocurrencies and their motives for entering this new market.

Assessing the Price Impact of Treasury Market Workups

Michael J. Fleming and Giang Nguyen



The price impact of a trade derives largely from its information content. The “workup” mechanism, a trading protocol used in the U.S. Treasury securities market, is designed to mitigate the instantaneous price impact of a trade by allowing market participants to trade additional quantities of a security after a buyer and seller first agree on its price. Nevertheless, workup trades are not necessarily free of information. In this post, we assess the role of workups in price discovery, following our recent paper in the Review of Asset Pricing Studies (an earlier version of which was released as a New York Fed staff report).

The Sensitivity of Long-Term Interest Rates: A Tale of Two Frequencies

David O. Lucca, Samuel Hanson, and Jonathan H. Wright



The sensitivity of long-term interest rates to short-term interest rates is a central feature of the yield curve. This post, which draws on our Staff Report, shows that long- and short-term rates co-move to a surprising extent at high frequencies (over daily or monthly periods). However, since 2000, they co-move far less at lower frequencies (over six months or a year). We discuss potential explanations for this finding and its implications for the transmission of monetary policy.

Global Trends in Interest Rates

Marco Del Negro, Domenico Giannone, Marc Giannoni, Andrea Tambalotti, Brandyn Bok, and Eric Qian



Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.

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

Michael Fleming, Frank Keane, and Justin Meyer

The New York Fed recently hosted the fourth annual Conference on the Evolving Structure of the U.S. Treasury Market. The one-day event was co-sponsored with the U.S. Department of the Treasury, the Federal Reserve Board, the U.S. Securities and Exchange Commission (SEC), and the U.S. Commodity Futures Trading Commission (CFTC). This year’s agenda, which included a series of keynote addresses and expert panels, focused on four key topics: 1) analytical approaches to debt issuance, 2) clearing and settlement, 3) developments in cash and repo markets, and 4) analysis of transactions data. Previous conferences were held in November 2017, October 2016, and October 2015.

Highlights from the Fourth Bi-annual Global Research Forum on International Macroeconomics and Finance

Ozge Akinci, Roland Beck, Paola Donati, Linda Goldberg, and Livio Stracca



Achieving and maintaining global financial stability has been at the forefront of policy discussions in the decade after the eruption of the global financial crisis. With the purpose of exploring key issues in international finance and macroeconomics from the perspective of what has changed ten years after the crisis, the fourth bi-annual Global Research Forum on International Macroeconomics and Finance, organized by the European Central Bank (ECB), the Federal Reserve Board, and the Federal Reserve Bank of New York, was held at the ECB in Frankfurt am Main on November 29-30, 2018. Participants included a diverse group from academia, international policy institutions, national central banks, and financial markets. Among the topics of discussion: the international roles of the U.S. dollar, the evolution of global financial markets, and the safety of the global financial system.