Template-Type: ReDIF-Paper 1.0
Author-Name: Darrell Duffie
Author-X-Name-First: Darrell
Author-X-Name-Last: Duffie
Author-Name: Michael Fleming
Author-X-Name-First: Michael
Author-X-Name-Last: Fleming
Author-Name: Frank Keane
Author-X-Name-First: Frank
Author-X-Name-Last: Keane
Author-Name: Claire Nelson
Author-X-Name-First: Claire
Author-X-Name-Last: Nelson
Author-Name: Or Shachar
Author-X-Name-First: Or
Author-X-Name-Last: Shachar
Author-Name: Peter Van Tassel
Author-X-Name-First: Peter
Author-X-Name-Last: Van Tassel
Title: Dealer capacity and US Treasury market functionality
Abstract: We show a significant loss in US Treasury market functionality when intensive use of dealer balance sheets is needed to intermediate bond markets, as in March 2020. Although yield volatility explains most of the variation in Treasury market liquidity over time, when dealer balance sheet utilization reaches sufficiently high levels, liquidity is much worse than predicted by yield volatility alone. This is consistent with the existence of occasionally binding constraints on the intermediation capacity of bond markets.
Creation-Date: 2023-10
File-URL: https://www.bis.org/publ/work1138.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1138.htm
File-Format: text/html
Number: 1138
Keywords: Treasury market, liquidity, volatility, dealer intermediation, value-at-risk
Classification-JEL: G01, G1, G12, G18, E58
Handle: RePEc:bis:biswps:1138