Interesting stuff. I was actually just thinking the other day what correlation/quantifier/metric exists that shows lag/moves the long end makes when the short end is cut. This piece is just a “piece of the puzzle”. A very important piece however.
I saw this. I'm unsure at what the new regulations will stop the hedge funds from doing - but from their point of view it's a considerable amount of extra work to be forced to qualify as "dealer". If it stops HFs from conducting repo in the size they do it will be a net negative for the UST market
That was my initial reaction too. One thought I had was that now that market making capacity has migrated from the banks to the HFs / shadow banking world, the new players may eventually need direct access to discount windows when the next emergency comes along. Millenium and Citadel can probably afford a few more compliance officers…
Access to Fed facilities rarely comes for free, and the usual exchange is more oversight and less return generating ability. That's been the experience at the banks anyhow
Interesting stuff. I was actually just thinking the other day what correlation/quantifier/metric exists that shows lag/moves the long end makes when the short end is cut. This piece is just a “piece of the puzzle”. A very important piece however.
Peter - this is a fabulous piece. Thank you!
This is very interesting! Thank you! Also, I'd like to see you elaborate your thoughts as you teased in the post!
Thank you again for an insightful article. It's much appreciated!
Can I ask how you calculated the returns p.a when you have to take into account carry&roll?
Peter - I would love your take on this news: https://www.bloomberg.com/news/articles/2024-02-06/hedge-funds-trading-treasuries-set-to-be-tagged-dealers-by-sec?cmpid=BBD020624_OAS&utm_medium=email&utm_source=newsletter&utm_term=240206&utm_campaign=openasia&sref=SAKZQfLK Necessary oversight or a threat to rates liquidity just when we do not need the UST market to gum up
I saw this. I'm unsure at what the new regulations will stop the hedge funds from doing - but from their point of view it's a considerable amount of extra work to be forced to qualify as "dealer". If it stops HFs from conducting repo in the size they do it will be a net negative for the UST market
That was my initial reaction too. One thought I had was that now that market making capacity has migrated from the banks to the HFs / shadow banking world, the new players may eventually need direct access to discount windows when the next emergency comes along. Millenium and Citadel can probably afford a few more compliance officers…
Access to Fed facilities rarely comes for free, and the usual exchange is more oversight and less return generating ability. That's been the experience at the banks anyhow