Authors: Nina Boyarchenko, Pooja Gupta, Nick Steele, and Jacqueline Yen
-
-
-
The mission of the Applied Macroeconomics and Econometrics Center (AMEC) is to provide intellectual leadership in the central banking community in the fields of macro and applied econometrics.
The Center for Microeconomic Data offers wide-ranging data and analysis on the finances and economic expectations of U.S. households.
The monthly Empire State Manufacturing Survey tracks the sentiment of New York State manufacturing executives regarding business conditions.
This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors.
-
-
-
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
-
-
-
The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
-
-
-
We are connecting emerging solutions with funding in three areas—health, household financial stability, and climate—to improve life for underserved communities. Learn more by reading our strategy.
The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality.
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
-
Staff Reports
Trends in Credit Market Arbitrage
July 2016 Number 784
Revised July 2016
Revised July 2016
JEL classification: G10, G23, G28
Market participants and policymakers alike were surprised by the large, prolonged dislocations in credit market arbitrage trades during the second half of 2015 and the first quarter of 2016. In this paper, we examine three explanations proposed by market participants: increased idiosyncratic risks, strategic positioning by some market participants, and regulatory changes. We find some evidence of increased idiosyncratic risk during the relevant period but limited evidence of asset managers changing their positioning in derivative products. While we cannot quantify the contribution of these two channels to the overall spreads, the relative changes in idiosyncratic risk levels and in asset managers' derivatives positions appear small relative to the post-crisis increase in cost of capital. We present the mechanics of the CDS-bond arbitrage trade, tracing its impact on a stylized dealer balance sheet and the return-on-equity (ROE) calculation. We find that, given current levels of regulatory leverage, the CDS-bond basis would need to be significantly more negative relative to pre-crisis levels to achieve the same ROE target.
32 pages / 388 kbTools
E-mail Alerts
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. 
