Bibliographic Details
| Title: |
The Treasury Collateral Spread and Levered Safe-Asset Production. |
| Authors: |
Ross, Chase P.1 (AUTHOR) chase.p.ross@frb.gov |
| Source: |
Management Science (INFORMS). Jul2026, Vol. 72 Issue 7, p6389-6418. 30p. |
| Subject Terms: |
*Repurchase agreements, *Spread (Finance), *Liquid assets, *Collateral security, *Financial institutions |
| Abstract: |
Banks are vital suppliers of money-like safe assets, which they produce by issuing short-term liabilities and pledging collateral. But their ability to create safe assets varies over time as leverage constraints fluctuate. I write a simple model to describe private safe-asset production when intermediaries face leverage constraints. I directly measure leverage constraints using confidential supervisory data on high-frequency changes in the largest banks' repurchase agreements (repos). The collateral spread—the maturity-matched yield spread between Treasuries used as repo collateral more often and Treasuries used less often—compensates for bank leverage risk and averages about 0.5 basis points, a sizable magnitude roughly equal to 60% of the five-year Treasury cheapest-to-deliver basis. This paper was accepted by Bo Becker, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.06104. [ABSTRACT FROM AUTHOR] |
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| Database: |
Business Source Index |
