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51 posts on "Treasury"

October 15, 2019

From the Vault: A Look Back at the October 15, 2014, Flash Rally



From the Vault: A Look Back at the October 15, 2014, Flash Rally

Five years ago today, U.S. Treasury yields plunged and then quickly rebounded for no apparent reason amid high volatility, strained liquidity conditions, and record trading volume in the market. Federal Reserve Chair Jerome Powell, then a Board governor, noted that such episodes, “threaten to erode investor confidence” and that investors need “to have full faith in the structure and functioning of Treasury markets themselves.” The October 15, 2014, “flash rally” led to an interagency staff report on the events of that day, an annual series of Treasury market conferences, additional study of clearing and settlement practices, and the introduction of a new transactions reporting scheme. Many of these developments are discussed in posts (see, for example, here and here) in the Liberty Street Economics archive.

Continue reading "From the Vault: A Look Back at the October 15, 2014, Flash Rally" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Markets, Treasury | Permalink | Comments (0)

July 17, 2019

How Do Large Banks Manage Their Cash?



Second of two posts
How Do Large Banks Manage Their Cash?

As the aggregate supply of reserves shrinks and large banks implement liquidity regulations, they may follow a variety of liquidity management strategies depending on their business models and the interest rate differences between alternative liquid instruments. For example, the banks may continue to hold large amounts of excess reserves or shift to Treasury or agency securities or shrink their balance sheets. In this post, we provide new evidence on how large banks have managed their cash, which is the largest component of reserves, on a daily basis since the implementation of liquidity regulations.

Continue reading "How Do Large Banks Manage Their Cash?" »

Posted by Blog Author at 7:00 AM in Banks, Federal Reserve, Liquidity, Regulation, Repo, Treasury | Permalink | Comments (2)

March 06, 2019

Assessing the Price Impact of Treasury Market Workups



LSE_2019_Assessing the Price Impact of Treasury Market Workups

The price impact of a trade derives largely from its information content. The “workup” mechanism, a trading protocol used in the U.S. Treasury securities market, is designed to mitigate the instantaneous price impact of a trade by allowing market participants to trade additional quantities of a security after a buyer and seller first agree on its price. Nevertheless, workup trades are not necessarily free of information. In this post, we assess the role of workups in price discovery, following our recent paper in the Review of Asset Pricing Studies (an earlier version of which was released as a New York Fed staff report).

Continue reading "Assessing the Price Impact of Treasury Market Workups" »

Posted by Blog Author at 7:00 AM in Fed Funds, Financial Markets, Liquidity, Treasury | Permalink | Comments (1)

February 27, 2019

Global Trends in Interest Rates



LSE_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.

Continue reading "Global Trends in Interest Rates" »

September 12, 2018

Do You Know How Your Treasury Trades Are Cleared and Settled?



LSE_2018_Do You Know How Your Treasury Trades Are Cleared and Settled?t

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 settled— information that may not be readily available to all market participants—and 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.

Continue reading "Do You Know How Your Treasury Trades Are Cleared and Settled?" »

Posted by Blog Author at 7:00 AM in Dealers, Financial Institutions, Financial Markets, Treasury | Permalink | Comments (0)

March 26, 2018

Dealer Trading and Positioning in Floating Rate Notes



LSE_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.

Continue reading "Dealer Trading and Positioning in Floating Rate Notes" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets, Treasury | Permalink | Comments (2)

February 05, 2018

A New Perspective on Low Interest Rates



First of three posts
LSE_A New Perspective on Low Interest Rates

Interest rates in the United States have remained at historically low levels for many years. This series of posts explores the forces behind the persistence of low rates. We briefly discuss some of the explanations advanced in the academic literature, and propose an alternative hypothesis that centers on the premium associated with safe and liquid assets. Our argument, outlined in a paper we presented at the Brookings Conference on Economic Activity last March, suggests that the increase in this premium since the late 1990s has been a key driver of the decline in the real return on U.S. Treasury securities.

Continue reading "A New Perspective on Low Interest Rates" »

Posted by Blog Author at 7:00 AM in Liquidity, Macroecon, Monetary Policy, Treasury | Permalink | Comments (2)

November 27, 2017

What Makes a Safe Asset Safe?



LSE_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.

Continue reading "What Makes a Safe Asset Safe?" »

Posted by Blog Author at 7:00 AM in Financial Markets, Liquidity, Treasury | Permalink | Comments (0)

September 26, 2017

The Treasury Market Practices Group: A Consequential First Decade



LSE_2017_The Treasury Market Practices Group: A Consequential First Decade

The Treasury Market Practices Group (TMPG) was formed in February 2007 in response to the appearance of some questionable trading practices in the secondary market for U.S. Treasury securities. (A history of the origins of the TMPG is available here.) Left unaddressed, the practices threatened to harm the efficiency and integrity of an essential global benchmark market. The Group responded by identifying and publicizing “best practices” in trading Treasury securities—a statement of behavioral norms intended to maintain a level and competitive playing field for all market participants. The Group’s focus expanded in 2008 to include market architecture issues, and again in 2010 to include the federal agency debt and mortgage-backed securities (MBS) markets.

Continue reading "The Treasury Market Practices Group: A Consequential First Decade" »

Posted by Blog Author at 7:00 AM in Regulation, Treasury | Permalink | Comments (0)

August 04, 2017

A Closer Look at the Fed’s Balance Sheet Accounting



LSE_2017_A Closer Look at the Fed’s Balance Sheet Accountingt


An earlier post on how the Fed changes the size of its balance sheet prompted several questions from readers about the Federal Reserve’s accounting of asset purchases and the payment of principal by the Treasury on Treasury securities owned by the Fed. In this post, we provide a more detailed explanation of the accounting rules that govern these transactions.

Continue reading "A Closer Look at the Fed’s Balance Sheet Accounting" »

Posted by Blog Author at 7:00 AM in Central Bank, Federal Reserve, Monetary Policy, Treasury | Permalink | Comments (6)
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