- ——— (2018): “Intermediary asset pricing and the financial crisis,” Annual Review of Financial Economics, 10, 173–197.
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- ——— (2021): “Recent Disruptions and Potential Reforms in the US Treasury Market: A Staff Progress Report,” Washington DC.
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- ——— (2022): “Enhancing the Resiliency of the US Treasury Market: 2022 Staff Progress Report,” Washington DC.
Paper not yet in RePEc: Add citation now
- ——— (2022): “US Treasury Markets: Steps Toward Increased Resilience: Status Update 2022,” G30 Working Group on Treasury Market Liquidity, Group of 30, Washington, DC.
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- ——— (2023): “Dollar Dominance Depends on the Resilience of the US Treasury Market,” Working paper, to appear, Stanford University.
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- Abboud, A., C. Anderson, A. Game, D. Iercosan, H. Inanoglu, and D. Lynch (2021): “Banks’ Backtesting Exceptions during the COVID-19 Crash: Causes and Consequences, ” FEDS Notes. Board of Governors of the Federal Reserve System.
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Adrian, T., E. Etula, and T. Muir (2014): “Financial intermediaries and the crosssection of asset returns,” Journal of Finance, 69, 2557–2596.
- Adrian, T., M. Fleming, and E. Vogt (2023): “The Evolution of Treasury Market Liquidity: Evidence from 30 Years of Limit Order Book Data,” Federal Reserve Bank of New York Staff Report No. 827.
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- Adrian, T., M. Fleming, J. Goldberg, M. Lewis, F. M. Natalucci, and J. J. Wu (2013): “Dealer Balance Sheet Capacity and Market Liquidity during the 2013 Selloff in Fixed Income Markets,” Federal Reserve Bank of New York Liberty Street Economics.
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Adrian, T., M. Fleming, O. Shachar, and E. Vogt (2017): “Market liquidity after the financial crisis,” Annual Review of Financial Economics, 9, 43–83.
Adrian, T., N. Boyarchenko, and O. Shachar (2017): “Dealer Balance Sheets and Bond Liquidity Provision,” Journal of Monetary Economics, 89, 92–109.
- Allen, J. and M. Wittwer (2023): “Centralizing Over-The-Counter Markets,” Journal of Political Economy, forthcoming.
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Andersen, L., D. Duffie, and Y. Song (2019): “Funding Value Adjustments,” Journal of Finance, 74, 145–192.
Baron, M. and T. Muir (2022): “Intermediaries and asset prices: International evidence since 1870,” Review of Financial Studies, 35, 2144–2189.
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- Bernardini, M. and A. De Nicola (2020): “The market stabilization role of central bank asset purchases: high-frequency evidence from the COVID-19 crisis,” Bank of Italy Temi di Discussione (Working Paper) No. 1310.
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Bicu-Lieb, A., L. Chen, and D. Elliott (2020): “The leverage ratio and liquidity in the gilt and gilt repo markets,” Journal of Financial Markets, 48, 100510.
- Boneva, L., J. Kastl, and F. Zikes (2020): “Dealer balance sheets and bidding behavior in the UK QE reverse auctions,” Working paper.
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- Boyarchenko, N., T. M. Eisenbach, P. Gupta, O. Shachar, and P. Van Tassel (2018): “Bank-intermediated arbitrage,” Federal Reserve Bank of New York Staff Report No. 858.
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- Brain, D., M. D. Pooter, D. Dobrev, M. Fleming, P. Johansson, F. Keane, M. Puglia, A. Rodrigues, and O. Shachar (2018): “Breaking Down TRACE Volumes Further,” Federal Reserve Bank of New York Liberty Street Economics.
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- Brainard, L. (2021): “Some Preliminary Financial Stability Lessons from the COVID19 Shock,” Speech at the 2021 Annual Washington Conference Institute of International Bankers, Board of Governors of the Federal Reserve System.
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Breckenfelder, J. and V. Ivashina (2021): “Bank leverage constraints and bond market illiquidity during the COVID-19 crisis,” European Central Bank Research Bulletin No. 89.
Brunnermeier, M. K. and L. H. Pedersen (2009): “Market Liquidity and Funding Liquidity,” Review of Financial Studies, 22, 2201–2238.
- Busetto, F., M. Chavaz, M. Froemel, M. Joyce, I. Kaminska, and J. Worlidge (2022): “QE at the bank of England: a perspective on its functioning and effectiveness,” Bank of England Quarterly Bulletin, Q1.
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- Chaboud, A., E. Correia-Golay, C. Cox, M. J. Fleming, Y. Huh, F. M. Keane, K. Lee, K. Schwarz, C. Vega, and C. Windover (2022): “All-to-all trading in the US Treasury market,” Federal Reserve Bank of New York Staff Report No. 1036.
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Comerton-Forde, C., T. Hendershott, C. Jones, P. Moulton, and M. Seasholes (2010): “Time Variation in Liquidity: The Role of Market-Maker Inventories and Revenues,” Journal of Finance, 65, 295–331.
Du, W., A. Tepper, and A. Verdelhan (2018): “Deviations from covered interest rate parity,” Journal of Finance, 73, 915–957.
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- Duffie, D. (2020): “Still the World’s Safe Haven? – Redesigning the US Treasury Market After the COVID-19 Crisis,” Hutchins Center Working Paper No. 62, Brookings Institution.
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- Duffie, D. and F. M. Keane (2023): “Market-Function Asset Purchases,” Federal Reserve Bank of New York Staff Report No. 1054.
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- Efron, B. and R. J. Tibshirani (1994): An introduction to the bootstrap, CRC press.
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- Empirically, yield curve noise as measured by daily closing quotes has been found to increase during periods of market stress, such as March 2020 and the GFC.
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- Etula, E. (2009): “Broker-Dealer Risk Appetite and Commodity Returns,” Federal Reserve Bank of New York Staff Report No. 406.
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- Figure C.1. Tick-size adjustment for 2-year spread and depth. Time-series plot of adjusted and unadjusted 2-year proportional spreads and negative log depth for January 2, 2017 through December 30, 2022. C.2 Off-the-run D2C measures Price dispersion In the absence of market frictions, one expects that traded prices would be equal to the expected market valuation. However, in the presence of market frictions, such as dealer inventory risk and client search costs, traded prices can be either higher or lower than the market expected value. Frictions can also result in situations where the security is traded at significantly different prices at approximately the same time.
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- Figure D.7. Full-horizon composite capacity utilization, 2005-2013 and 2014-2022. Time-series of dealer capacity utilization measures based on risk-adjusted gross positions and net positions. Average capacity utilization is the simple average of the two measures. Capacity utilization is estimated separately for the two sub-periods.
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Filipović, D., M. Pelger, and Y. Ye (2022): “Stripping the Discount Curve: A Robust Machine Learning Approach,” Swiss Finance Institute Research Paper No. 22-24.
- Financial Stability Board (2020): “Holistic Review of the March Market Turmoil,” Financial Stability Board Reports to the G20.
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- Fleming, M. and F. Keane (2021): “The Netting Efficiencies of Marketwide Central Clearing,” Federal Reserve Bank of New York Staff Report No. 964.
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- Fleming, M. and F. Ruela (2020): “Treasury Market Liquidity during the COVID-19 Crisis,” Federal Reserve Bank of New York Liberty Street Economics.
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- Fleming, M. J. (2003): “Measuring Treasury market liquidity,” Federal Reserve Bank of New York Economic Policy Review, 9, 83–108.
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- Fleming, M. J. and E. M. Remolona (1999): “Price formation and liquidity in the US Treasury market: The response to public information,” Journal of Finance, 54, 1901–1915.
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Fleming, M. J., B. Mizrach, and G. Nguyen (2018): “The Microstructure of a U.S. Treasury ECN: The BrokerTec Platform,” Journal of Financial Markets, 40, 2–22.
- Fleming, M. J., G. H. Nguyen, and F. Ruela (2023): “Tick Size, Competition for Liquidity Provision, and Price Discovery: Evidence from the US Treasury Market,” Management Science, forthcoming.
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- Fleming, M. J., J. V. Rosenberg, and G. Nguyen (2022): “How do Treasury dealers manage their positions?” Federal Reserve Bank of New York Staff Report No. 299.
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- Fleming, M., H. Liu, R. Podjasek, and J. Schurmeier (2022): “The Federal Reserve’s Market Functioning Purchases,” Federal Bank of New York Economic Policy Review, 9, 210–241.
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- Fontaine, J.-S., C. Garriott, J. Johal, J. Lee, and A. Uthemann (2021): “COVID19 Crisis: Lessons Learned for Future Policy Research,” Staff Discussion Paper 2021-2, Bank of Canada.
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- Garbade and Silber (1976) is one of the earliest works to analyze price dispersion models in the context of the US Treasury market. They use daily bid and ask quote sheets from government securities dealers for small trades (“odd-lots”) to compute dispersion as the 90 percent range or root-mean-squared distance of bid and ask quotes from the average quote.
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Garbade, K. D. and W. L. Silber (1976): “Price dispersion in the government securities market,” Journal of Political Economy, 84, 721–740.
Giglio, S., B. Kelly, and S. Pruitt (2016): “Systemic risk and the macroeconomy: An empirical evaluation,” Journal of Financial Economics, 119, 457–471.
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Gromb, D. and D. Vayanos (2010): “A model of financial market liquidity based on intermediary capital,” Journal of the European Economic Association, 8, 456–466.
- Group of Thirty (2021): “US Treasury Markets: Steps Toward Increased Resilience,” G30 Working Group on Treasury Market Liquidity, Group of 30, Washington, DC.
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He, Z. and A. Krishnamurthy (2012): “A model of capital and crises,” Review of Economic Studies, 79, 735–777.
He, Z., B. Kelly, and A. Manela (2017): “Intermediary Asset Pricing: New Evidence from Many Asset Classes,” Journal of Financial Economics, 126, 1–35.
He, Z., P. Khorrami, and Z. Song (2022): “Commonality in credit spread changes: Dealer inventory and intermediary distress,” Review of Financial Studies, 35, 4630–4673.
- He, Z., S. Nagel, and Z. Song (2022): “Treasury Inconvenience Yields during the COVID-19 Crisis,” Journal of Financial Economics, 43, 57–79.
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- Ho, T. S. and H. R. Stoll (1983): “The dynamics of dealer markets under competition,” Journal of Finance, 38, 1053–1074.
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Hu, G. X., J. Pan, and J. Wang (2013): “Noise as information for illiquidity,” Journal of Finance, 68, 2341–2382.
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- Jankowitsch, R., A. Nashikkar, and M. G. Subrahmanyam (2011): “Price dispersion in OTC markets: A new measure of liquidity,” Journal of Banking & Finance, 35, 343–357.
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Jermann, U. (2020): “Negative swap spreads and limited arbitrage,” Review of Financial Studies, 33, 212–238.
Klingler, S. and S. Sundaresan (2023): “Diminishing Treasury convenience premiums: Effects of dealers’ excess demand and balance sheet constraints,” Journal of Monetary Economics, 135, 55–69.
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Krishnamurthy, A. (2002): “The bond/old-bond spread,” Journal of Financial Economics, 66, 463–506.
- Kutai, A., D. Nathan, and M. Wittwer (2022): “Exchanges for Government Bonds? Evidence During COVID-19,” Working paper, Bank of Israel.
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- Liang, N. and P. Parkinson (2020): “Enhancing Liquidity of the US Treasury Market Under Stress,” Hutchins Center Working Paper No. 72, Brookings Institution.
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- Logan, L. (2020): “Treasury market liquidity and early lessons from the pandemic shock,” Remarks at Brookings-Chicago Booth Task Force on Financial Stability meeting.
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Longstaff, F. A. (2004): “The Flight-to-Liquidity Premium in US Treasury Bond Prices,” Journal of Business, 77, 511–526.
- Net order flow is calculated as buyer-initiated trading volume minus seller-initiated trading volume, where the signing of trades is based on BrokerTec trade data. Price impact is measured in basis points (in return space) per $100 million net trading volume and is inflation adjusted to the 2022 price level.
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Nguyen, G., R. Engle, M. Fleming, and E. Ghysels (2020): “Liquidity and volatility in the US Treasury market,” Journal of Econometrics, 217, 207–229.
- One could extend the Cournot setting of Wallen (2022), who models an oligopolistic market in which dealers without quarter-end capital regulations benefit if other dealers have binding quarter-end capital constraints, and calibrates the model to the cross-currency basis. A simpler example is a cartel that is able to enforce capacity limits on its members. While each member of the cartel would, if able, benefit from a relaxation of only its own capacity constraint, all members earn higher profits by cartelizing, with an optimally chosen capacity constraint that binds all members to some fraction of their uncartelized capacities.
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Pasquariello, P. and C. Vega (2009): “The on-the-run liquidity phenomenon,” Journal of Financial Economics, 92, 1–24.
- Quoted depth is the order book depth at the inside tier, summed across the bid and offer sides. Depth is measured in millions of US dollars par, and is inflation adjusted to the 2022 price level. We then take the negative log of the depth so a higher number indicates worse liquidity, similar to the other measures we calculate.
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- Tarullo, D. (2023): “Capital Regulation and the Treasury Market,” Hutchins Center, Brookings Institution.
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- To allow some comparison between utilization measures that are based on FR 2004 form and utilization measures that are based on TRACE data, we focus on flows and volumes of MPIDs that are linked to primary dealer entities. Note that the legal entities under the “primary dealer” entity do not necessarily align with the TRACE MPIDs. Hence, other than the aggregation above, when handling primary dealers’ mergers, we sum TRACE volumes of the later-to-be-merged entities throughout the sample, except for Santander. On July 15, 2021, Santander Holdings USA reached an agreement to acquire Amherst Pierpont Securities. Both Santander and Amherst Pierpont have been TRACE reporters, but Santander was not a primary dealer prior to the merger with Amherst Pierpont. When determining the weights of dealers based on their D2C trading volume, we consider Amherst Pierpont separately up to the merger, and only then adding Santander and Pierpont. Overall, we match 26 primary dealers to 291 MPIDs.
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- US Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Reserve Bank of New York, US Securities and Exchange Commission, and US Commodity Futures Trading Commission (2015): “Joint Staff Report: The US Treasury Market on October 15, 2014,” Washington DC.
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- Vayanos, D. and P.-O. Weill (2008): “A search-based theory of the on-the-run phenomenon, ” Journal of Finance, 63, 1361–1398.
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- Vissing-Jorgensen, A. (2021): “The Treasury Market in Spring 2020 and the Response of the Federal Reserve,” Journal of Monetary Economics, 124, 19–47.
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- Wallen, J. (2022): “Markups to financial intermediation in foreign exchange markets,” Working paper, Harvard University.
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- Wang, C. (2017): “Core-Periphery Trading Networks,” Working paper, Stanford University.
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- Yield curve root mean square error (RMSE) Following Hu, Pan, and Wang (2013), our yield curve RMSE (or noise) measure is intended to capture the deviation between Treasury prices and those implied by a smooth yield curve. Yield curve noise can be interpreted as an arbitrage spread. In the absence of frictions, one would expect Treasury prices to closely align with those implied by a zero-coupon discount function for risk-free cash flows.
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