NY Fed's Perli on Short-Term Funding
The Federal Reserve Bank of New York's Roberto Perli gave a speech Friday titled, "Recent Developments in Treasury Market Liquidity and Funding Conditions," which "examines a rich set of topics that are core to monetary policy implementation, such as the quantity of reserves, demand elasticities of different investors in the Treasury cash and repo markets, the convenience yield of Treasury securities, and much more." He comments, "I will start by reviewing recent developments in Treasury market liquidity, something that I and my colleagues on the Federal Reserve's Open Market Desk (the Desk) monitor closely. Well-functioning Treasury cash and repo markets are of course essential for the effective transmission and implementation of monetary policy. A key point that I would like to emphasize is that, although liquidity in Treasury cash markets became strained in early April, those markets continued to function, in part because of the resilience of funding liquidity in the Treasury repo market. That resilience, even amid heightened yield volatility, likely prevented the unwind of certain shorter-term relative value trades, which would have exacerbated market dislocations. And funding liquidity resilience was likely helped by the robust rate control framework that the Federal Reserve has put in place. Finally, I will conclude with some thoughts on how implementation tools, such as the Standing Repo Facility (SRF), can be refined to further strengthen the implementation framework and the resilience of Treasury funding liquidity." Perli adds, "To conclude, the good functioning of the Treasury market is essential for the smooth implementation and transmission of monetary policy, and thanks in part to the resilience of funding liquidity, the Treasury market has continued to function well even amid a deterioration of liquidity conditions. At the same time, thinking of ways of appropriately enhancing the effectiveness of Fed facilities is at the core of our mission. The high-quality research that will be presented at this conference, geared toward a better understanding of Treasury repo and cash market functioning, is extremely helpful to us. It is my hope that my remarks provided some food for thought and encourage more research on these topics."
