Natalie Burr The challenge of measuring financial conditions Imagine you were tasked with thinking about how financial conditions have changed over a policy tightening cycle. Different economists would come to very different conclusions, and none would necessarily be wrong. Why? Because measuring financial conditions is challenging – for a variety of reasons. A financial conditions … Continue reading The challenges of measuring financial conditions
Financial Markets
Nicola Garbarino, Benjamin Guin and Jonathan Lee 5.2 million properties in England are at risk of flooding. To ensure the availability and affordability of flood insurance to households in flood-prone areas, the UK Government introduced an innovative reinsurance scheme, Flood Re, in April 2016. It provides insurers with an option to pass the flood-risk element … Continue reading The effects of subsidised flood insurance on real estate markets
In March 2020, the Trudeau government launched a new version of the Insured Mortgage Purchase Program (IMPP). According to CMHC’s website: “Under this program, the government will purchase up to $50 billion of insured mortgage pools through CMHC.” Here are 10 things to know: 1. Canada Mortgage and Housing Corporation (CMHC) is a federally-owned crown corporation. Many of us know [...]
Gerardo Ferrara, Gerardo Martinez, Pelagia Neocleous, Pierre Ortlieb and Manesh Powar The Russian invasion of Ukraine in February 2022 and subsequent sanctions led to unprecedented increases in key commodity prices. While prices briefly abated in late spring and early summer, these surged again over late July and August, with EU and UK gas prices reaching … Continue reading ‘There is all the difference in the world between paying and being paid’: margin calls and liquidity demand in volatile commodity markets
Policymakers and market participants are closely watching liquidity conditions in the U.S. Treasury securities market. Such conditions matter because liquidity is crucial to the many important uses of Treasury securities in financial markets. But just how liquid has the market been and how unusual is the liquidity given the higher-than-usual volatility? In this post, we assess the recent evolution of Treasury market liquidity and its relationship with price volatility and find that while the market has been less liquid in 2022, it has not been unusually illiquid after accounting for the high level of volatility.
The Federal Open Market Committee (FOMC) has increased the target interest rate by 3.75 percentage points since March 17, 2022. In this post we examine how corporate bond market functioning has evolved along with the changes in monetary policy through the lens of the U.S. Corporate Bond Market Distress Index (CMDI). We compare this evolution to the 2015 tightening cycle for context on how bond market conditions have evolved as rates increase. The overall CMDI has deteriorated but remains close to historical medians. The investment-grade CMDI index has deteriorated more than the high-yield, driven by low levels of primary market issuance.
Several centralized crypto entities failed in 2022, resulting in the cascading failure of other crypto firms and raising questions about the protection of crypto investors. While the total amount invested in the crypto sector remains small in the United States, more than 10 percent of all Americans are invested in cryptocurrencies. In this post, we examine whether migrating crypto activities from centralized platforms to decentralized finance (DeFi) protocols might afford investors better protection, especially in the absence of regulatory changes. We argue that while DeFi provides some benefits for investors, it also introduces new risks and so more work is needed to make it a viable option for mainstream investors.
Barbara Jankowiak, Natan Misak and Nicholas Vause Both financial market participants and regulators have suggested that investor risk appetite has declined since the beginning of the year. This post presents some evidence from credit markets consistent with such developments, and offers two possible explanations. We build on analysis in an earlier post that looked at … Continue reading Bitesize: The pricing of credit risk
Julian Reynolds Moves in oil prices have significant implications for the global economic outlook, affecting consumer prices, firm costs and country export revenues. But oil futures contracts tend to give an imperfect steer for the future path of oil prices because, at any given time, futures contracts may be affected by a wide range of … Continue reading What is the information content of oil futures curves?
Naoto Takemoto, Simon Jurkatis and Nicholas Vause In less than two decades, the system of market-based finance (MBF) – which involves mainly non-bank financial institutions (NBFIs) providing credit to the economy through bonds rather than loans – has both mitigated and amplified the economic effects of financial crises. It mitigated effects after the global financial … Continue reading Strengthening the resilience of market-based finance