Staff Reports
How Do Treasury Dealers Manage Their Positions?
August 2007 Number 299
Revised March 2024
JEL classification: G12, G20, G24

Authors: Michael J. Fleming, Giang Nguyen, and Joshua V. Rosenberg

Using thirty-one years of data (1990–2020) on U.S. Treasury dealer positions, we find that Treasury issuance is the main driver of dealers’ weekly inventory changes. Such inventory fluctuations are only partially offset in adjacent weeks and not significantly hedged with futures. Dealers are compensated for inventory risk by means of subsequent price appreciation of their holdings. Amid increased balance sheet costs attributable to post-crisis regulatory changes, dealers significantly reduce their position taking and layoff inventory faster. Moreover, the increased participation of non-dealers (investment funds) in the primary market contributes to diminishing compensation for inventory risk taken on at auctions.

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