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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).
Marco Del Negro, Domenico Giannone, Marc Giannoni, Andrea Tambalotti, Brandyn Bok, and Eric Qian
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.
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.
Marco Del Negro, Domenico Giannone, Marc Giannoni, and Andrea Tambalotti
First of three posts
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.
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.
Kenneth D. Garbade, Frank M. Keane, and Radhika Mithal
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.
Deborah Leonard, Antoine Martin, and Jennifer Wolgemuth
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.
As noted in our previous post, thirty years has marked the outer boundary of Treasury bond maturities since “regular and predictable” issuance of coupon-bearing Treasury debt became the norm in the 1970s. However, the Treasury issued bonds with maturities of greater than thirty years on seven occasions in the 1950s and 1960s, in an effort to lengthen the maturity structure of the debt. While our earlier post described the efforts of Treasury debt managers to lengthen debt maturities between 1953 and 1957, this post examines the period from 1957 to 1965. An expanded version of both posts is available here.
Ever since “regular and predictable” issuance of coupon-bearing Treasury debt became the norm in the 1970s, thirty years has marked the outer boundary of Treasury bond maturities. However, longer-term bonds were not unknown in earlier years. Seven such bonds, including one 40-year bond, were issued between 1955 and 1963. The common thread that binds the seven bonds together was the interest of Treasury debt managers in lengthening the maturity structure of the debt. This post describes the efforts to lengthen debt maturities between 1953 and 1957. A subsequent post will examine the period from 1957 to 1965. An extended version of both posts is available here.
Corporate bonds are an important source of funding for public corporations in the United States. When these bonds cannot be easily traded in secondary markets or when investors cannot easily hedge their bond positions in derivatives markets, the issuance costs to corporations increase, leading to higher overall funding costs. In this post, we examine recent trends in arbitrage-based measures of liquidity in corporate bond and credit default swap (CDS) markets and evaluate potential explanations for the deterioration in these measures that occurred between the middle of 2015 and early 2016.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
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