In a recent Liberty Street Economics post, we showed that the newly reintroduced 20-year bond trades less than other on-the-run Treasury securities and has similar liquidity to that of the more interest‑rate‑sensitive 30-year bond. Is it common for newly introduced securities to trade less and with higher transaction costs, and how does security trading behavior change over time? In this post, we look back at how liquidity evolved for earlier reintroductions of Treasury securities so as to gain insight into how liquidity might evolve for the new 20-year bond.
Look for our next post on September 19.
August 26, 2020
August 24, 2020
Explaining the Puzzling Behavior of Short‑Term Money Market Rates
Since 2008, the Federal Reserve has dramatically increased the supply of bank reserves, effectively adopting a floor system for monetary policy implementation. Since then, the behavior of short-term money market rates has been at times puzzling. In particular, short-term rates have been surprisingly firm in recent months, despite the large increase in reserves by the Fed as a part of its response to the coronavirus pandemic. In this post, we provide evidence that both the supply of reserves and the supply of short-term Treasury securities are important factors for explaining short-term rates.
August 20, 2020
Market Function Purchases by the Federal Reserve
This post describes efforts taken by the Federal Reserve to support and sustain the Treasury and MBS markets following the COVID-19 outbreak as well as prior “market functioning” interventions in 1939, 1958, and 1970.
August 19, 2020
August 18, 2020
Debt Relief and the CARES Act: Which Borrowers Benefit the Most?
COVID-19 and associated social distancing measures have had major labor market ramifications, with massive job losses and furloughs. Millions of people have filed jobless claims since mid-March—6.9 million in the week of March 28 alone. These developments will surely lead to financial hardship for millions of Americans, especially those who hold outstanding debts while facing diminishing or disappearing wages. The CARES Act, passed by Congress on April 2, 2020, provided $2.2 trillion in disaster relief to combat the economic impacts of COVID-19. Among other measures, it included mortgage and student debt relief measures to alleviate the cash flow problems of borrowers. In this post, we examine who could benefit most (and by how much) from various debt relief provisions under the CARES Act.
Posted at 7:00 am in Equitable Growth, Household Finance, Housing, Inequality | Permalink | Comments (2)
August 17, 2020
Are Financially Distressed Areas More Affected by COVID‑19?
Building upon our earlier Liberty Street Economics post, we continue to analyze the heterogeneity of COVID-19 incidence. We previously found that majority-minority areas, low-income areas, and areas with higher population density were more affected by COVID-19. The objective of this post is to understand any differences in COVID-19 incidence by areas of financial vulnerability. Are areas that are more financially distressed affected by COVID-19 to a greater extent than other areas? If so, this would not only further adversely affect the financial well-being of the individuals in these areas, but also the local economy. This post is the first in a three part-heterogeneity series looking at heterogeneity in the credit market as it pertains to COVID-19 incidence and CARES Act debt relief.
August 13, 2020
The Disproportionate Effects of COVID‑19 on Households with Children
A growing body of evidence (here, here, and here) points to large negative economic and health impacts of the COVID-19 pandemic on low-income, Black, and Hispanic Americans. Beyond the consequences of school cancellations and lost social interactions, there exists considerable concern about the long-lasting effects of economic hardship on children. In this post, we assess the extent of the underlying economic and financial strain faced by households with children living at home, using newly collected data from the monthly Survey of Consumer Expectations (SCE).
August 12, 2020
Token‑ or Account‑Based? A Digital Currency Can Be Both
The authors discuss a common distinction made between “token-based” and “account-based” digital currencies, noting that the distinction is problematic since Bitcoin and many other digital currencies satisfy both definitions.
August 10, 2020
Implications of the COVID‑19 Disruption for Corporate Leverage
The COVID-19 pandemic has caused significant economic disruptions among U.S. corporations. In this post, we study the preliminary impact of these disruptions on the cash flow and leverage of public U.S. corporations using public filings through April 2020. We find that the pandemic had a negative impact on cash flow while also reducing corporations’ interest expenses. However, the cash flow shock far outpaced the benefits of lower interest payments, especially in industries that were disproportionately levered. Looking ahead, we find that a sizable share of U.S. corporations have interest expense greater than cash flow, raising concerns about those corporations’ ability to endure further liquidity shocks.
August 7, 2020
Securing Secured Finance: The Term Asset‑Backed Securities Loan Facility
The asset-backed securities (ABS) market, by supporting loans to households and businesses such as credit card and student loans, is essential to the flow of credit in the economy. The COVID-19 pandemic disrupted this market, resulting in higher interest rate spreads on ABS and halting the issuance of most ABS asset classes. On March 23, 2020, the Fed established the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the issuance of ABS backed by a variety of loan types including student loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA), thereby re-enabling the flow of credit to households and businesses of all sizes. In this post, we describe how the TALF works, its impact on market conditions, and how it differs from the TALF that the Fed established in 2009.
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