292 posts on "Financial Markets"
September 28, 2018
Unlocking the Treasury Market through TRACE
The U.S. Treasury market is widely regarded as the deepest and most liquid securities market in the world, playing a critical role in the global economy and in the Federal Reserve’s implementation of monetary policy. Despite the Treasury market’s importance, the official sector has historically had limited access to information on cash market transactions. This data gap was most acutely demonstrated in the investigation of the October 15, 2014, flash event in the Treasury market, as highlighted in the Joint Staff Report (JSR). Following the JSR, steps were taken to improve regulators’ access to information on Treasury market activity, as detailed in a previous Liberty Street Economics post, with Financial Industry Regulatory Authority (FINRA) members beginning to submit data on cash market transactions to FINRA’s Trade Reporting and Compliance Engine (TRACE) on July 10, 2017. This joint FEDS Note and Liberty Street Economics blog post from staff at the Board of Governors of the Federal Reserve System and Federal Reserve Bank of New York aims to share initial insights on the transactions data reported to TRACE, focusing on trading volumes in the market.
Posted at 7:00 am in Financial Markets | Permalink
September 12, 2018
Do You Know How Your Treasury Trades Are Cleared and Settled?
The Treasury Market Practices Group (TMPG) recently released a consultative white paper on clearing and settlement processes for secondary market trades of U.S. Treasury securities. The paper describes in detail the many ways Treasury trades are cleared and settledinformation that may not be readily available to all market participantsand identifies potential risk and resiliency issues. The work is designed to facilitate discussion as to whether current practices have room for improvement. In this post, we summarize the current state of clearing and settlement for secondary market Treasury trades and highlight some of the risks described in the white paper.
July 18, 2018
The Premium for Money‑Like Assets
Several academic papers have documented investors’ willingness to pay a premium to hold money-like assets and focused on its implication for financial stability. In a New York Fed staff report, we estimate such premium using a quasi-natural experiment, the recent reform of the money market fund (MMF) industry by the Securities and Exchange Commission (SEC).
Posted at 7:00 am in Financial Intermediation, Financial Markets, Regulation | Permalink | Comments (1)
March 26, 2018
Dealer Trading and Positioning in Floating Rate Notes
In January 2014, the U.S. Treasury Department made its first sale of Floating Rate Notes (FRNs), securities whose coupon rates vary over time depending on the course of short-term rates. Now that a few years have passed, we have enough data to analyze dealer trading and positioning in FRNs. In this post, we assess the level of trading and positioning, concentration across issues, and auction cycle effects, comparing these properties to those of other types of Treasury securities.
February 28, 2018
Dealer Participation in the TSLF Options Program
Our previous post described the workings of the Term Securities Lending Facility Options Program (TOP), which offered dealers options for obtaining short-term loans over month- and quarter-end dates during the global financial crisis of 2007-08. In this follow-up post, we examine dealer participation in the TOP, including the extent to which dealers bid for options, at what fees, and whether they exercised their options. We also provide evidence on how uncertainty in dealers’ funding positions was related to the demand for the liquidity options.
February 26, 2018
Options of Last Resort
During the global financial crisis of 2007-08, collateral markets became illiquid, making it difficult for dealers to obtain short-term funding to finance their positions. As lender of last resort, the Federal Reserve responded with various programs to promote liquidity in these markets, including the Primary Dealer Credit Facility and the Term Securities Lending Facility (TSLF). In this post, we discuss an additional and rarely discussed liquidity facility introduced by the Fed during the crisis: the TSLF Options Program (TOP). The TOP was unique among crisis-period liquidity facilities in its provision of options. A follow-up post will analyze dealer participation in the TOP.
February 9, 2018
Hey, Economist! What Do Cryptocurrencies Have to Do with Trust?
Bitcoin and other “cryptocurrencies” have been much in the news lately, in part because of their wild gyrations in value. Michael Lee and Antoine Martin, economists in the New York Fed’s Money and Payment Studies function, have been following cryptocurrencies and agreed to answer some questions about digital money.
Posted at 7:00 am in Banks, Central Bank, Cryptocurrencies, Financial Markets, Hey, Economist!, Monetary Policy | Permalink
November 29, 2017
Did Investor Sentiment Affect Credit Risk around the 2016 Election?
Immediately following the presidential election of 2016, both consumer and investor sentiments were buoyant and financial markets boomed. That these sentiments affect financial asset prices is not so surprising, given past stock market evidence and episodes such as the dot-com bubble. Perhaps more surprising, the risk of corporate default—which is driven mainly by firms’ financial health but also by bond liquidity—also fell following the election, as indicated by lower yield spreads. In this post, I show that, although expectations of better corporate and macroeconomic conditions were the primary drivers of lower credit risk, improved investor sentiment also contributed.
November 27, 2017
What Makes a Safe Asset Safe?
Over the last decade, the concept of “safe assets” has received increasing attention, from regulators and private market participants, as well as researchers. This attention has led to the uncovering of some important details and nuances of what makes an asset “safe” and why it matters. In this blog post, we provide a review of the different aspects of safe assets, discuss possible reasons why they may be beneficial for investors, and give concrete examples of what these assets are in practice.
November 15, 2017
The Low Volatility Puzzle: Is This Time Different?
As stock market volatility hovers near all-time lows, some analysts are questioning whether investors are complacent, drawing an analogy to the lead-up to the financial crisis. But, is this time different? We follow up on our previous post by investigating the persistence of low volatility periods. Historically, realized stock market volatility is persistent and mean-reverting: low volatility today predicts slightly higher, but still low, volatility one month and one year from now. Moreover, as of mid-September, the market is pricing implied volatility of 19 percent in one to two years’ time. This level contrasts with the pre-crisis period when the term structure of implied volatility was relatively flat, which suggests this time may indeed be different, at least as measured by market participants’ pricing of risk.
Posted at 7:00 am in Financial Markets | Permalink
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