The scarcity value of Treasury collateral: Repo market effects of security-specific supply and demand factors

Stefania D'Amico, Roger Fan and Yuriy Kitsul
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Yuriy Kitsul: https://www.federalreserve.gov/econres/yuriy-kitsul.htm

No 2014-60, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In the special collateral repo market, forward agreements are security-specific, which may magnify demand and supply effects. We quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the repo rates of all outstanding U.S. Treasury securities. We find an economically and statistically significant scarcity premium. This scarcity effect is quite persistent, passes through to Treasury market prices, and explains a significant portion of the flow-effects of LSAP programs, providing additional evidence for the scarcity channel of QE. Through the same mechanism, the Fed's reverse repo operations could alleviate potential shortages of high-quality collateral.

Keywords: Treasury bonds; repo contracts; supply-demand factors; liquidity; large-scale asset purchase programs; Treasury auctions (search for similar items in EconPapers)
JEL-codes: C23 E43 G12 G19 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2014-05-05
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The Scarcity Value of Treasury Collateral: Repo Market Effects of Security-Specific Supply and Demand Factors (2013)
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