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Jay Kahn Profile picture
Jay Kahn
@jstatistic
Economist covering markets that work quietly but fail loudly: repo, Treasuries, safe assets. Alum @MichiganRoss, @SimonSchool, @Reed_College_. Views my own.
Mar 31, 2025 • 12 tweets • 3 min read
Our new FEDS Note looks at how nonbank activity can offer early signals of reserve scarcity.

Today, I’ll focus on what we learn from MMF behavior in the repo market.

Sources below. Image When reserves are ample, dealers can tap their bank affiliates for funding.

Banks draw down reserve buffers, forgoing IOR. That keeps repo spreads low and rates stable, even through modest fluctuations in reserves.
Mar 28, 2025 • 13 tweets • 4 min read
Let’s walk through the new Brookings paper on the basis trade and especially their proposal that, in stress, the Fed should take over basis trade positions.

I'll link to related work (including ours) in a QT. Image The first portion of this paper is a model of the basis trade.

I've pointed out to the authors that this is essentially the same as the model below from our 2021 paper, which they were apparently unaware of and have agreed to cite in future versions.

Mar 3, 2025 • 6 tweets • 2 min read
It's nice to see the OFR repo aggregates I worked on used.

But the captions on this figure from @conksresearch are an excellent example of how hard it is to interpret repo movements, because there are confounding differences market segments.

Two points below, sources in QT. Image 1) GCF is largely term agency repos, rather than UST repo.

While the article talks about SRF as a ceiling, it's therefore not clear whether the GCF average "should" sit below SRF (which is overnight Treasury repo), since both agency and term repo usually command higher rates. Image
Dec 30, 2024 • 15 tweets • 4 min read
A note of caution on cutting back the basis trade by shortening UST duration, based on some of my recent work. 👇 The basis trade hinges on three players:

1) 𝗗𝗲𝗮𝗹𝗲𝗿𝘀 looking to reduce cash Treasury holdings (e.g., for balance sheet reasons)
2) 𝗠𝗼𝗻𝗲𝘆 𝗺𝗮𝗿𝗸𝗲𝘁 𝗳𝘂𝗻𝗱𝘀 seeking safe, short-term investments
3) 𝗔𝘀𝘀𝗲𝘁 𝗺𝗮𝗻𝗮𝗴𝗲𝗿𝘀 who want duration exposure via futures Image
May 3, 2024 • 11 tweets • 4 min read
1/🧵 We just put out a new paper putting numbers to a mystery I've been working on since 2020: who is behind the almost $2 trillion increase in long Treasury futures positions?

Spoiler alert: it's mostly mutual funds but the cool thing is why.

Link here: papers.ssrn.com/sol3/papers.cf…
Image 2/🧵 Previous work by myself and others has shown that the opposite side of this trade, the short position, is mostly a very large and highly levered arbitrage trade by hedge fund known as the cash-futures basis trade.

papers.ssrn.com/sol3/papers.cf…
Image
Jan 3, 2023 • 14 tweets • 5 min read
Ron Alquist, @DiltsStedman, and I recently released a new version of our paper: papers.ssrn.com/sol3/papers.cf…

We show the use of the USD as reserves exposes US money markets to foreign countries' net export shocks, providing a role for the Fed as "central banker to the world."

1/14 Image Our motivation comes from events in March 2020, when a global dash for cash occurred among foreign central banks, as they build up dollar FX buffers by selling Treasuries while simultaneously *buying* USD liquidity through vehicles like the Fed's foreign repo pool.

2/14 Image