16 posts on "Gabriele La Spada"
July 7, 2020
A New Reserves Regime? COVID‑19 and the Federal Reserve Balance Sheet
Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve dramatically expanded its balance sheet, both directly, through outright purchases and repurchase agreements, and indirectly, as a consequence of the facilities to support market functioning and the flow of credit to the real economy. In this post, we characterize the increase in reserves between March and June 2020, describing changes to the distribution and concentration of reserves.
Posted at 7:00 am in Fed Funds, Federal Reserve, Fiscal Policy, Liquidity, Monetary Policy, Pandemic | Permalink
June 29, 2020
Municipal Debt Markets and the COVID‑19 Pandemic
In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show that conditions in municipal markets have improved significantly, in part a result of the announcement and implementation of several Federal Reserve facilities. Yields have decreased substantially, mutual funds have received significant inflows, and issuance has rebounded. These improvements in municipal market conditions help ensure that state and local governments have better access to funding for critical capital investments.
June 16, 2020
Outflows from Bank‑Loan Funds during COVID‑19
The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.
Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Liquidity, Pandemic | Permalink | Comments (2)
May 8, 2020
The Money Market Mutual Fund Liquidity Facility
To prevent outflows from prime and muni funds from turning into an industry-wide run after the COVID-19 outbreak, the Federal Reserve established Money Market Mutual Fund Liquidity Facility. This post looks at the Fed’s intervention, its goals, and the direct and indirect market effects.
Posted at 7:00 am in Central Bank, COVID-19 Facilities, Credit, Federal Reserve, Financial Institutions, Financial Intermediation, Financial Markets, Liquidity, Monetary Policy, Pandemic | Permalink
November 20, 2019
Monetary Policy Transmission and the Size of the Money Market Fund Industry
Assets under management (AUM) of retail money market funds (MMF) have soared during monetary policy tightening episodes, lagging the spread between MMF yields and CD rates.
Posted at 7:00 am in Federal Reserve, Financial Institutions, Financial Intermediation, Monetary Policy | Permalink | Comments (4)
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)
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