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The Imperfect Intermediation of Money‐Like Assets

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  • JEREMY C. STEIN
  • JONATHAN WALLEN

Abstract

We study supply‐and‐demand effects in the U.S. Treasury bill market by comparing the returns on T‐bills to the policy rate on the Federal Reserve's reverse repurchase (RRP) facility. We develop and test a simple model where the RRP‐bill spread is policed both by heterogeneously elastic money funds and by corporate treasurers who derive collateral benefits from holding T‐bills. In response to shifts in T‐bill supply, money funds act as front‐line arbitrageurs. However, when T‐bills become extremely scarce, less elastic corporate treasurers become the marginal investors and supply shifts have a larger effect on T‐bill rates.

Suggested Citation

  • Jeremy C. Stein & Jonathan Wallen, 2025. "The Imperfect Intermediation of Money‐Like Assets," Journal of Finance, American Finance Association, vol. 80(6), pages 3185-3221, December.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:6:p:3185-3221
    DOI: 10.1111/jofi.13500
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    Cited by:

    1. Carlos Canon & Eddie Gerba & Jozef Barunik, 2026. "When David becomes Goliath: Repo dealer-driven bond mispricing," Papers 2603.10690, arXiv.org.

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