Simon Potter August 4, 2018

Transcription

1 Confidence in the Implementation of U.S. Monetary Policy Normalization Remarks at the 23 rd EMEAP (Executives Meeting of East Asia-Pacific Central Banks) Governors Meeting Manila, Philippines Simon Potter August 4, 218 The views presented here are those of the author and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System

2 Figure 1: Effective Federal Funds Rate (EFFR) and Interest on Reserves (IOR) Percent 2.5 Target Range IOR EFFR Oct '15 Apr '16 Oct '16 Apr '17 Oct '17 Apr '18 Source: Federal Reserve Bank of New York; Board of Governors. 1

3 Figure 2: Cumulative Distribution of Traded Overnight Money Market Rates Percent of Volume 1 Fed Funds Eurodollars Tri-Party Repo 75 Dec. 217 Mar. 218 Jun BPS Note: Each period comprises the 1 non-month-end business days following a change to the target range. Distributions represent the volumeweighted 1st, 1th, 2th, 25th, 3th, 4th, 5th, 6th, 7th, 75th, 8th, 9th, and 99th percentile of rates. Dotted line represents the median rate. Dashed lines represent IOR during each period. Source: FR 242 Report of Selected Money Market Rates; BNYM; Board of Governors. 2

4 Figure 3: Select Overnight Money Market Rates Percent Target Range IOR 2.5 Overnight Bank Funding Rate (OBFR) Tri-Party General Collateral Rate (TGCR) Secured Overnight Financing Rate (SOFR) Oct '15 Apr '16 Oct '16 Apr '17 Oct '17 Apr '18 Source: Federal Reserve Bank of New York; Board of Governors. 3

5 Figure 4: Maturity Profile of SOMA Security Holdings $ Billion 8 7 Maturity Profile of SOMA Treasury Securities Reinvestments Redemptions Estimated Reinvestments Estimated Redemptions Redemption cap Projected Redemptions at Year-end 217 $ Billion 3 25 Projected Paydown Profile of SOMA Agency Debt and MBS Principal Reinvestments Redemptions Estimated Reinvestments Estimated Redemptions Redemption cap Projected Redemptions at Year-end Jan '18 Mar '18 May '18 Jul '18 Sep '18 Nov '18 Source: Federal Reserve Bank of New York. Jan '18 Mar '18 May '18 Jul '18 Sep '18 Nov '18 Source: Federal Reserve Bank of New York. 4

6 Figure 5: Effective Federal Funds Rate and Interest on Reserves Percent 2.25 Target Range IOR EFFR Jan '18 Feb '18 Mar '18 Apr '18 May '18 Jun '18 Source: Federal Reserve Bank of New York; Board of Governors. 5

7 Figure 6: Cumulative Net U.S. Treasury Bill Issuance $ Billion Actual Industry Estimate Jan '17 May '17 Sep '17 Jan '18 May '18 Sep '18 Source: U.S. Treasury; Wrightson ICAP. 6

8 Figure 7: Primary Dealer Net Positioning in Treasury Securities $ Billion 16 FRN TIPS Bills Coupons Jan '17 Apr '17 Jul '17 Oct '17 Jan '18 Apr '18 Source: Federal Reserve Bank of New York. 7

9 Figure 8: FHLB Tri-Party Repo Volumes and TGCR-EFFR Spread $ Billion TGCR-EFFR Spread (RHS) FHLB Tri-Party Repo Volumes (LHS) 25 Pct. Pts Sep '17 Dec '17 Mar '18 Jun ' Note: Weekly averages, excludes month-end dates. Source: Federal Reserve Bank of New York. 8

10 Figure 9: Federal Funds and Eurodollar Trading Volumes at Rates Relative to IOR Percent Volumes at or Below IOR Volumes above IOR Sep '17 Oct '17 Nov '17 Dec '17 Jan '18 Feb '18 Mar '18 Apr '18 May '18 Jun '18 Note: Weekly averages. Source: FR 242 Report of Selected Money Market Rates. 9

11 Figure 1: Daily Changes in Reserve Balances vs. Daily Changes in IOR-EFFR Spread Daily Changes in IOR-EFFR Spread, Bps Q17-4Q17 1Q18 2Q Daily Changes in Reserve Balances, $ Billion Note: Excludes month-end dates. Reserves exclude GSE balances. Source: Federal Reserve Bank of New York; Board of Governors. 1

12 Figure 11: Domestic vs. Foreign Borrowing Activity in Federal Funds Market Federal Funds Trading Volumes at Rates Relative to IOR: Average 11/16/17-11/22/17 Federal Funds Trading Volumes at Rates Relative to IOR: Average 4/2/18-4/26/18 $ Billion $ Billion Foreign Borrowers 45 Foreign Borrowers 4 Domestic Borrowers 4 Domestic Borrowers >IOR >IOR Spread to IOR Spread to IOR Note: Dashed line is the average EFFR over the period. Source: FR 242 Report of Selected Money Market Rates. Note: Dashed line is the average EFFR over the period. Source: FR 242 Report of Selected Money Market Rates. 11

13 Figure 12: Effective Federal Funds Rate and Median Overnight Eurodollar Rate Percent EFFR Median Overnight Eurodollar Rate Jan '18 Feb '18 Mar '18 Apr '18 May '18 Jun '18 Source: Federal Reserve Bank of New York; FR 242 Report of Selected Money Market Rates. 12

14 Figure 13: 3-month U.S. Dollar LIBOR and LIBOR-OIS Bps LIBOR (LHS) LIBOR-OIS (RHS) Bps Sep '17 Dec '17 Mar '18 Jun '18 Source: Bloomberg L.P. 13

15 Figure 14: Estimated Cross-Border U.S. Dollar LIBOR-Linked Bank Loans to Non-U.S. Residents $ Billion Maturity > 1y Maturity < 1y 4, 3,5 3, 2,5 2, 1,5 1, 5 Developed Offshore Centers Developing Note: Assumes the vast majority of long-term loans have a base rate of LIBOR and that loans with maturity <1-year reprice off of LIBOR, or a close substitute. Source: Bank for International Settlements; Staff Calculations. 14

16 Figure 15: Taxable U.S. Money Market Mutual Fund Assets Under Management $ Billion Prime Government 3, 2,5 2, 1,5 1, 5 Jan '15 Jan '16 Jan '17 Jan '18 Source: Securities and Exchange Commission; Treasury OFR. 15