Dealer capacity and US Treasury market functionality

Darrell Duffie, Michael Fleming, Frank Keane, Claire Nelson, Or Shachar and Peter Van Tassel

No 1138, BIS Working Papers from Bank for International Settlements

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.

Keywords: Treasury market; liquidity; volatility; dealer intermediation; value-at-risk (search for similar items in EconPapers)
JEL-codes: E58 G01 G1 G12 G18 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.bis.org/publ/work1138.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1138.htm (text/html)

Related works:
Working Paper: Dealer Capacity and U.S. Treasury Market Functionality (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1138

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().