IDEAS home Printed from https://ideas.repec.org/b/bis/bisbps/119.html
   My bibliography  Save this book

Non-bank financial institutions and the functioning of government bond markets

Author

Listed:
  • Egemen Eren
  • Philip Wooldridge

Abstract

The structure of market making in government bond markets has shifted from a bank-centric model to a hybrid one in which non-bank financial institutions, notably principal trading firms and hedge funds, play an important role alongside banks. This shift has occurred in several countries and, while farthest advanced in liquid segments, is also evident in less liquid segments. The turmoil in March 2020 highlighted structural vulnerabilities arising from the hybrid model and the procyclical behaviour of some non-bank financial institutions. Proposals for improving the resilience of liquidity in government bond markets aim to reduce demand for liquidity during stress episodes, increase intermediation capacity and improve the efficiency of intermediation.

Suggested Citation

  • Egemen Eren & Philip Wooldridge, 2021. "Non-bank financial institutions and the functioning of government bond markets," BIS Papers, Bank for International Settlements, number 119.
    • Handle: RePEc:bis:bisbps:119
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/bppdf/bispap119.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: http://www.bis.org/publ/bppdf/bispap119.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andreas Schrimpf & Hyun Song Shin & Vladyslav Sushko, 2020. "Leverage and margin spirals in fixed income markets during the Covid-19 crisis," BIS Bulletins 2, Bank for International Settlements.
    2. Mr. Serkan Arslanalp & Mr. Takahiro Tsuda, 2014. "Tracking Global Demand for Emerging Market Sovereign Debt," IMF Working Papers 2014/039, International Monetary Fund.
    3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    4. Adam Copeland & Darrell Duffie & Yilin Yang, 2021. "Reserves Were Not So Ample After All," Staff Reports 974, Federal Reserve Bank of New York.
    5. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2020. "Emerging market economy exchange rates and local currency bond markets amid the Covid-19 pandemic," BIS Bulletins 5, Bank for International Settlements.
    6. Vissing-Jorgensen, Annette, 2021. "The Treasury Market in Spring 2020 and the Response of the Federal Reserve," Journal of Monetary Economics, Elsevier, vol. 124(C), pages 19-47.
    7. Stefan Avdjiev & Egemen Eren & Patrick McGuire, 2020. "Dollar funding costs during the Covid-19 crisis through the lens of the FX swap market," BIS Bulletins 1, Bank for International Settlements.
    8. Egemen Eren & Andreas Schrimpf & Vladyslav Sushko, 2020. "US dollar funding markets during the Covid-19 crisis - the international dimension," BIS Bulletins 15, Bank for International Settlements.
    9. Dobrislav Dobrev & Andrew C. Meldrum, 2020. "What Do Quoted Spreads Tell Us About Machine Trading at Times of Market Stress? Evidence from Treasury and FX Markets during the COVID-19-Related Market Turmoil in March 2020," FEDS Notes 2020-09-25, Board of Governors of the Federal Reserve System (U.S.).
    10. Doug Brain & Michiel De Pooter & Dobrislav Dobrev & Michael J. Fleming & Peter Johansson & Collin Jones & Frank M. Keane & Michael Puglia & Liza Reiderman & Anthony P. Rodrigues & Or Shachar, 2018. "Unlocking the Treasury Market through TRACE," Liberty Street Economics 20180928b, Federal Reserve Bank of New York.
      • Doug Brain & Michiel De Pooter & Dobrislav Dobrev & Michael J. Fleming & Peter Johansson & Collin Jones & Frank M. Keane & Michael Puglia & Liza Reiderman & Tony Rodrigues & Or Shachar, 2018. "Unlocking the Treasury Market through TRACE," FEDS Notes 2018-09-28-1, Board of Governors of the Federal Reserve System (U.S.).
    11. Michael J. Fleming, 2020. "Treasury Market Liquidity and the Federal Reserve during the COVID-19 Pandemic," Liberty Street Economics 20200529a, Federal Reserve Bank of New York.
    12. Peter Hördahl & Ilhyock Shim, 2020. "EME bond portfolio flows and long-term interest rates during the Covid-19 pandemic," BIS Bulletins 18, Bank for International Settlements.
    13. Daniel Barth & R. Jay Kahn, 2021. "Hedge Funds and the Treasury Cash-Futures Disconnect," Working Papers 21-01, Office of Financial Research, US Department of the Treasury.
    14. Michael J. Fleming & Francisco Ruela, 2020. "Treasury Market Liquidity during the COVID-19 Crisis," Liberty Street Economics 20200417, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Scheicher, Martin, 2023. "Intermediation in US and EU bond and swap markets: stylised facts, trends and impact of the coronavirus (COVID-19) crisis in March 2020," ESRB Occasional Paper Series 24, European Systemic Risk Board.
    2. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129.
    3. Forbes, Kristin & Friedrich, Christian & Reinhardt, Dennis, 2023. "Stress relief? Funding structures and resilience to the covid shock," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 47-81.
    4. Onofrio Panzarino, 2023. "Investor behavior under market stress:evidence from the Italian sovereign bond market," Temi di discussione (Economic working papers) 33, Bank of Italy, Economic Research and International Relations Area.
    5. Park, Cyn-Young & Shin, Kwanho, 2023. "The Development of Local Currency Bond Markets and Uncovered Interest Rate Parity," ADB Economics Working Paper Series 677, Asian Development Bank.
    6. Sebastian Doerr & Egemen Eren & Semyon Malamud, 2023. "Money Market Funds and the Pricing of Near-Money Assets," Swiss Finance Institute Research Paper Series 23-04, Swiss Finance Institute.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Onofrio Panzarino, 2023. "Investor behavior under market stress:evidence from the Italian sovereign bond market," Temi di discussione (Economic working papers) 33, Bank of Italy, Economic Research and International Relations Area.
    2. Sirio Aramonte & Andreas Schrimpf & Hyun Song Shin, 2023. "Non-bank financial intermediaries and financial stability," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 7, pages 147-170, Edward Elgar Publishing.
    3. Jordan Barone & Alain P. Chaboud & Adam Copeland & Cullen Kavoussi & Frank M. Keane & Seth Searls, 2023. "The Global Dash for Cash: Why Sovereign Bond Market Functioning Varied across Jurisdictions in March 2020," Economic Policy Review, Federal Reserve Bank of New York, vol. 29(3), pages 1-29, December.
    4. Michael J. Fleming & Haoyang Liu & Rich Podjasek & Jake Schurmeier, 2022. "The Federal Reserve’s Market Functioning Purchases," Economic Policy Review, Federal Reserve Bank of New York, vol. 28(1), pages 210-241, July.
    5. Matthias Thiemann, 2021. "La relation asymétrique des banques centrales au financement de marché : une évaluation des implications pour la stabilité financière à la lumière des évènements lés à la Covid," Post-Print hal-03622943, HAL.
    6. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2020. "Emerging market economy exchange rates and local currency bond markets amid the Covid-19 pandemic," BIS Bulletins 5, Bank for International Settlements.
    7. Matthias Thiemann, 2021. "La relation asymétrique des banques centrales au financement de marché : une évaluation des implications pour la stabilité financière à la lumière des évènements lés à la Covid," SciencePo Working papers Main hal-03622943, HAL.
    8. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    9. Jieun Lee, 2023. "Dollar and government bond liquidity: evidence from Korea," BIS Working Papers 1145, Bank for International Settlements.
    10. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129.
    11. Mert Onen & Hyun Song Shin & Goetz von Peter, 2023. "Overcoming original sin: insights from a new dataset," BIS Working Papers 1075, Bank for International Settlements.
    12. Thomas M. Eisenbach & Gregory Phelan, 2022. "Fragility of Safe Asset Markets," Staff Reports 1026, Federal Reserve Bank of New York.
    13. John Beirne & Nuobu Renzhi & Eric Sugandi & Ulrich Volz, 2021. "COVID‐19, asset markets and capital flows," Pacific Economic Review, Wiley Blackwell, vol. 26(4), pages 498-538, October.
    14. Mahyar Kargar & Benjamin Lester & David Lindsay & Shuo Liu & Pierre-Olivier Weill & Diego Zúñiga, 2021. "Corporate Bond Liquidity during the COVID-19 Crisis [The day coronavirus nearly broke the financial markets]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5352-5401.
    15. Beirne, John Beirne & Renzhi, Nuobu & Sugandi, Eric Alexander & Volz, Ulrich, 2020. "Financial Market and Capital Flow Dynamics During the COVID-19 Pandemic," ADBI Working Papers 1158, Asian Development Bank Institute.
    16. Foley, Sean & Kwan, Amy & Philip, Richard & Ødegaard, Bernt Arne, 2022. "Contagious margin calls: How COVID-19 threatened global stock market liquidity," Journal of Financial Markets, Elsevier, vol. 59(PA).
    17. Carlos Cantú & Paolo Cavallino & Fiorella De Fiore & James Yetman, 2021. "A global database on central banks' monetary responses to Covid-19," BIS Working Papers 934, Bank for International Settlements.
    18. Forbes, Kristin & Friedrich, Christian & Reinhardt, Dennis, 2023. "Stress relief? Funding structures and resilience to the covid shock," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 47-81.
    19. Claudio Borio, 2020. "The Covid-19 economic crisis: dangerously unique," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 55(4), pages 181-190, October.
    20. Maurizio Trapanese, 2021. "The economics of non-bank financial intermediation: why do we need to fill the regulation gap?," Questioni di Economia e Finanza (Occasional Papers) 625, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:bisbps:119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Beslmeisl (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.