Staff Reports

How Do Treasury Dealers Manage Their Positions?

August 2007Number 299
Revised March 2008
JEL classification: G12, G20, G24

Authors: Michael J. Fleming and Joshua V. Rosenberg

Using data on U.S. Treasury dealer positions from 1990 to 2006, we find evidence of a significant role for dealers in the intertemporal intermediation of new Treasury security supply. Dealers regularly take into inventory a large share of Treasury issuance so that dealer positions increase during auction weeks. These inventory increases are only partially offset in adjacent weeks and are not significantly hedged with futures. Dealers seem to be compensated for the risk associated with these inventory changes by means of price appreciation in the subsequent week.

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