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Working paper

Операции на открытом рынке и волатильность доходности облигаций: результаты микроструктурного исследования

I study the impact of the open market operations conducted by the Fed on the volatility of bond returns during the Fed time. I use the high-frequency GovPX transaction data and find evidence that the Fed’s day-to-day monetary policy is not neutral with respect to the instrument employed and Fed has a pronounced impact on the bond market. The Fed’s presence is significant on days when overnight open market operations are conducted and is not significant for the term open market operations. Through the detailed analyses of the repo, fed funds, and bond markets, I demonstrate that the observed volatility pattern can be attributed to a collateral reassignment problem faced by the primary dealers. Since the Fed’s open market operations are pay-your-bid auctions primary dealers can choose the extent to which they participate in the auction. It appears that the incentive to get a cheaper source of financing causes them to submit more orders for refinancing with the Fed than it satisfies. The unfulfilled orders have to be financed on the private repo market later during the day. I find that the volatility of bond returns during the Fed time is positively associated with the bond dealer’s repo book imbalance and negatively with the width of the operations coverage. This analysis serves as a measure of the efficiency of the day-to-day monetary policy implementation and suggests importance of the more competitive primary dealers structure.