Board of Governors of the Federal Reserve System

Figure 1. Maturity Transformation at Broker-Dealers and Hedge Funds

This figure contains two panels. The left panel plots the maturity of net Treasury and corporate security positions and Treasury and corporate security repo borrowing of broker-dealers between January 2015 and April 2022. These values are calculated using a weighted average over the midpoint of maturity buckets. The panel shows that the maturity of net Treasury and corporate security positions of broker-dealers increased from about 1 year to about 3 years between 2015 and 2020, before decreasing during 2021 and 2022 to about 2 years. The panel also shows that the average net maturity of Treasury and corporate security repo is typically close to zero, consistent with the idea that a large fraction of dealers’ inventories are supported by overnight borrowing and lending.

The right panel plots the estimated duration of net Treasury positions of hedge funds between 2015 and 2021, using methods developed in Kruttli, Monin, Petrasek, and Watugala (2021) and Banegas, Monin, and Petrasek (2021). It also plots the financing maturity of hedge funds with Treasury exposure. The panel shows that the estimated duration of net Treasury positions of hedge funds varied between 4 and 6 years between 2015 and 2020. In 2021, the estimated duration of net Treasury positions of hedge funds decreased to about 1 year before increasing again to 4 years. The financing maturity of hedge funds with Treasury exposure has varied between 40 and 50 days during the entire period.

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Figure 2. Dealers’ Interest Rate Exposures (DV01s)

This figure contains two panels. The left panel plots the aggregate trading portfolio exposures of 12 primary dealers, measured in millions of dollars per one basis point decrease in yield (DV01), for Treasury securities of five different maturities, including 1 month, 1 year, 5 years, 10 years, and 30 years. The sample runs from Q3 2015 to Q1 2022. The panel shows that dealers’ net exposures to longer maturity interest rates have been close to zero on average.

The right panel plots dealers’ aggregate net positions, measured in millions of dollars per basis point, in Treasury futures and options for four contracts, including the 2-year Treasury note, 5-year Treasury note, the 10-year and ultra 10-year Treasury note, and the long and ultra long-term Treasury bond. The net positions are computed by multiplying the notional value, in dollars, of the positions by its approximate interest rate sensitivity. The sample runs from September 2015 through May 2022. The panel shows that dealers’ net positions in Treasury futures and options are slightly negative for most contracts most of the time and that in recent years dealers held sizeable net short positions in longer-term Treasury futures.

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