299 posts on "Financial Markets"
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
November 13, 2017
The Low Volatility Puzzle: Are Investors Complacent?
In recent months, some analysts and policymakers have raised concerns about the unusually low level of stock market volatility. For example, in the June Federal Open Market Committee (FOMC) minutes “a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.” In this post, we review this concern and find the evidence on investor complacency is mixed. On one hand, we present a view suggesting that historical volatility may have been abnormally high, rather than current volatility being abnormally low. On the other hand, we find that estimates of the volatility risk premium are somewhat low, which is consistent with the view that investor risk tolerance has increased. We extend this analysis in a related post publishing on Wednesday.
November 6, 2017
Mission Almost Impossible: Developing a Simple Measure of Pass‑Through Efficiency
Short-term credit markets have evolved significantly over the past ten years in response to unprecedentedly high levels of reserve balances, a host of regulatory changes, and the introduction of new monetary policy tools. Have these and other developments affected the way monetary policy shifts “pass through” to money markets and, ultimately, to households and firms? In this post, we discuss a new measure of pass‑through efficiency, proposed by economists Darrell Duffie and Arvind Krishnamurthy at the Federal Reserve’s 2016 Jackson Hole summit.
October 12, 2017
Just Released: New York Fed Markets Data Dashboard
The Federal Reserve Bank of New York releases data on a number of market operations, reference rates, monetary policy expectations, and Federal Reserve securities portfolio holdings. These data are released at different times, for different types of securities or rates, and for different audiences.
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