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Discussion Paper
What Explains the June Spike in Treasury Settlement Fails?
McMorrow, Michael; Keane, Frank M.; Fleming, Michael J.; Martin, Antoine (2014-09-19)
In June of this year?as we noted in the preceding post?settlement fails in U.S. Treasury securities spiked to their highest level since the implementation of the fails charge in May 2009. Our first post reviewed what fails are, why they arise, and how they can be measured. In this post, we dig into the fails data to identify possible explanations for the high level of fails in June. We observe that sequential fails of several benchmark securities accounted for the lion?s share of fails in June, but that fails in seasoned securities?which have been trending upward for some time?were also ...
Liberty Street Economics , Paper 20140919a

Journal Article
Current Recession Risk According to the Yield Curve
Bauer, Michael D.; Mertens, Thomas M. (2022-05-09)
The slope of the Treasury yield curve is a popular recession predictor with an excellent track record. The two most common alternative measures of the slope typically move together but have diverged recently, making the resulting recession signals unclear. Economic arguments and empirical evidence, including its more accurate predictions, favor the difference between 10-year and 3-month Treasury securities. Recession probabilities for the next year derived from this spread so far remain modest.
FRBSF Economic Letter , Volume 2022 , Issue 11 , Pages 05

Discussion Paper
How Can Safe Asset Markets Be Fragile?
Eisenbach, Thomas M.; Phelan, Gregory (2022-09-08)
The market for U.S. Treasury securities experienced extreme stress in March 2020, when prices dropped precipitously (yields spiked) over a period of about two weeks. This was highly unusual, as Treasury prices typically increase during times of stress. Using a theoretical model, we show that markets for safe assets can be fragile due to strategic interactions among investors who hold Treasury securities for their liquidity characteristics. Worried about having to sell at potentially worse prices in the future, such investors may sell preemptively, leading to self-fulfilling “market runs” ...
Liberty Street Economics , Paper 20220908

Speech
Comments on “A Skeptical View of the Impact of the Fed’s Balance Sheet”: remarks at the 2018 U.S. Monetary Policy Forum, New York City
Dudley, William (2018-02-23)
Remarks at the 2018 U.S. Monetary Policy Forum, New York City.
Speech , Paper 275

Discussion Paper
Treasury Market Liquidity during the COVID-19 Crisis
Fleming, Michael J.; Ruela, Francisco (2020-04-17)
A key objective of recent Federal Reserve policy actions is to address the deterioration in financial market functioning. The U.S. Treasury securities market, in particular, has been the subject of Fed and market participants’ concerns, and the venue for some of the Fed’s initiatives. In this post, we evaluate a basic metric of market functioning for Treasury securities— market liquidity—through the first month of the Fed’s extraordinary actions. Our particular focus is on how liquidity in March 2020 compares to that observed over the past fifteen years, a period that includes the ...
Liberty Street Economics , Paper 20200417

Report
Tick Size, Competition for Liquidity Provision, and Price Discovery: Evidence from the U.S. Treasury Market
Ruela, Francisco; Nguyen, Giang; Fleming, Michael J. (2019-04-01)
This paper studies how a tick size change affects market quality, price discovery, and the competition for liquidity provision by dealers and high-frequency trading firms (HFTs) in the U.S. Treasury market. Employing difference-in-differences regressions around the November 19, 2018 tick size reduction in the two-year Treasury note and a similar change for the two-year futures eight weeks later, we find significantly improved market quality. Moreover, dealers become more competitive in liquidity provision and price improvement, consistent with the hypothesis that HFTs find liquidity provision ...
Staff Reports , Paper 886

Speech
Disentangling Messages from the Treasury Market
Perli, Roberto (2023-11-16)
Remarks at 2023 U.S. Treasury Market Conference, Federal Reserve Bank of New York, New York City.
Speech

Discussion Paper
Unlocking the Treasury Market through TRACE
Dobrev, Dobrislav; De Pooter, Michiel; Fleming, Michael J.; Johansson, Peter; Puglia, Michael; Jones, Collin; Keane, Frank M.; Brain, Doug; Reiderman, Liza; Rodrigues, Anthony P.; Shachar, Or (2018-09-28)
The U.S. Treasury market is widely regarded as the deepest and most liquid securities market in the world, playing a critical role in the global economy and in the Federal Reserve’s implementation of monetary policy. Despite the Treasury market’s importance, the official sector has historically had limited access to information on cash market transactions. This data gap was most acutely demonstrated in the investigation of the October 15, 2014, flash event in the Treasury market, as highlighted in the Joint Staff Report (JSR). Following the JSR, steps were taken to improve regulators’ ...
Liberty Street Economics , Paper 20180928b

Working Paper
Treasury Safety, Liquidity, and Money Premium Dynamics: Evidence from Recent Debt Limit Impasses
Klee, Elizabeth C.; Ferris, Erin E. Syron; Cashin, David B. (2020-01-31)
Treasury securities normally possess unparalleled safety and liquidity and, consequently, carry a money premium. We use recent debt limit impasses, which temporarily increased the riskiness of Treasuries, to investigate the relationship between the money premium, safety, and liquidity. Our results shed light on Treasury market dynamics specifically, and debt more generally. We first establish that a decline in the perceived safety of Treasuries erodes the money premium at all times. Meanwhile, changes in liquidity only affected the money premium during the impasses. Next, we show that ...
Finance and Economics Discussion Series , Paper 2020-008

Speech
A Solution to Every Puzzle
Williams, John C. (2020-09-29)
Remarks at the 2020 U.S. Treasury Market Conference (delivered via videoconference).
Speech

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