How do Treasury dealers manage their positions?

Michael Fleming, Giang Nguyen and Joshua Rosenberg

Journal of Financial Economics, 2024, vol. 158, issue C

Abstract: Using 31 years of data (1990–2020) on U.S. Treasury dealer positions, we find that Treasury issuance is the main driver of dealers’ weekly inventory changes. Such inventory fluctuations are only partially offset in adjacent weeks and not significantly hedged with futures. Dealers are compensated for inventory risk by means of subsequent price appreciation of their holdings. Amid increased balance sheet costs attributable to post-crisis regulatory changes, dealers significantly reduce their position taking and layoff inventory faster. Moreover, the increased participation of non-dealers (investment funds) in the primary market contributes to diminishing compensation for inventory risk taken on at auctions.

Keywords: Treasury market; Dealers; Issuance; Positions; Inventory risk; Hedging (search for similar items in EconPapers)
JEL-codes: G12 G24 G28 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Working Paper: How do treasury dealers manage their positions? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:158:y:2024:i:c:s0304405x24001089

DOI: 10.1016/j.jfineco.2024.103885

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