304 posts on "Financial Markets"
March 4, 2019
The Sensitivity of Long‑Term Interest Rates: A Tale of Two Frequencies
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.
February 27, 2019
Global Trends in Interest Rates
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.
Posted at 7:00 am in Banks, Central Bank, Credit, Expectations, Federal Reserve, Financial Institutions, Financial Markets, Inflation, Liquidity, Macroeconomics, Monetary Policy, Treasury | Permalink | Comments (2)
February 1, 2019
At the New York Fed: Fourth Annual Conference on the Evolving Structure of the U.S. Treasury Market
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.
Posted at 7:00 am in Financial Markets | Permalink
January 11, 2019
Highlights from the Fourth Bi‑annual Global Research Forum on International Macroeconomics and Finance
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.
December 5, 2018
Price Impact of Trades and Limit Orders in the U.S. Treasury Securities Market
It’s long been known that asset prices respond not only to public information, such as macroeconomic announcements, but also to private information revealed through trading. More recently, with the growth of high-frequency trading, academics have argued that limit orders—orders to buy or sell a security at a specific price or better—also contain information. In this post, we examine the information content of trades and limit orders in the U.S. Treasury securities market, following this paper, recently published in the Journal of Financial Markets and earlier as a New York Fed staff report.
November 29, 2018
Breaking Down TRACE Volumes Further
Following an earlier joint FEDS Note and Liberty Street Economics blog post that examined aggregate trading volume in the Treasury cash market across venues, this post looks at volume across security type, seasoned-ness (time since issuance), and maturity. The analysis, which again relies on transactions recorded in the Financial Industry Regulatory Authority’s (FINRA) Trade Reporting and Compliance Engine (TRACE), sheds light on perceptions that some Treasury securities—in particular those that are off-the-run—may not trade very actively. We confirm that most trading volume is made up of on-the-run securities, especially in venues where the market has become more automated. However, we also find that daily average volume in off-the-run securities is still a meaningful $157 billion (27 percent of overall volume), and accounts for a large share (41 percent) of trading in the dealer-to-client venue of the market.
Posted at 7:00 am in Financial Markets | Permalink
November 26, 2018
The Pre‑FOMC Announcement Drift: More Recent Evidence
We had previously documented large excess returns on equities ahead of scheduled announcements of the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary policy-making body—between 1994 and 2011. This post updates our original analysis with more recent data. We find evidence of continued large excess returns during FOMC meetings, but only for those featuring a press conference by the Chair of the FOMC
October 26, 2018
U.S. Treasury Market Action on Election Night 2016
As the midterm elections approach, it’s worth revisiting the striking financial market response to the last federal elections, in 2016. U.S. equity market futures and Treasury yields first plunged on election night 2016, as the presidential election results turned out closer than expected, but quickly rebounded after President Trump’s victory became clear, ultimately ending the day higher. In this post, I take a close look at the unusual U.S. Treasury market behavior that night, focusing on the market conditions and trading flows amid which the sharp yield changes took place.
Posted at 7:00 am in Financial Markets | Permalink
October 18, 2018
Bank‑Intermediated Arbitrage
Since the 2007-09 financial crisis, the prices of closely related assets have shown persistent deviations—so-called basis spreads. Because such disparities create apparent profit opportunities, the question arises of why they are not arbitraged away. In a recent Staff Report, we argue that post-crisis changes to regulation and market structure have increased the costs to banks of participating in spread-narrowing trades, creating limits to a¬rbitrage. In addition, although one might expect hedge funds to act as arbitrageurs, we find evidence that post-crisis regulation affects not only the targeted banks but also spills over to less regulated firms that rely on bank intermediation for their arbitrage strategies.
October 17, 2018
Credit Market Choice
Credit default swaps (CDS) are frequently credited with being the cause of AIG’s collapse during the financial crisis. A Reuters article from September 2008, for example, notes “[w]hen you hear that the collapse of AIG […] might lead to a systemic collapse of the global financial system, the feared culprit is, largely, that once-obscure […] instrument known as a credit default swap.” Yet, despite the prominent role that CDS played during the financial crisis, little is known about how individual financial institutions utilize CDS contracts on individual companies. In a recent New York Fed staff report, we assess the choice banks face when trading the idiosyncratic credit risk of a firm, and argue that banks’ participation decisions have been affected in the post-regulation period, either by direct changes in market structure or by changes in the relative cost of pursuing different strategies.
Posted at 7:00 am in Financial Institutions, Financial Intermediation, Financial Markets, Regulation | Permalink | Comments (2)
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