Working Papers



Collateral Choice
Abstract: I provide the first systematic analysis of collateral choices in one of the main short-term funding markets, the repurchase agreement (repo) market. Repos establish a natural connection between short-term and long-term funding markets as long-term bonds serve as collateral in short-term funding trades. In general collateral repos, the borrower can choose which bond he posts as collateral out of a predefined list. In the aggregate, on-the-run bonds are more likely to be delivered than cheapest-to-post securities, which is surprising given that the former are more expensive. I rationalize those findings in a theoretical framework that links the repo to the bond market. My results are relevant for explaining different bond market patterns.
Past presentations: University of St. Gallen, Federal Reserve / University of Maryland Short-Term Funding Markets Conference, SFI Research Days, Finance Forum, FMA European Conference, World Finance Conference, SAFE Market Microstructure Conference, Annual Meeting of the German Finance Association (doctoral workshop), GPEF PhD Day, 17th Central Bank Conference on Microstructure of Financial Markets, New Zealand Finance Meeting, American Economic Association (poster session), University of Maryland, University of Rochester, Federal Reserve Board of Governors, McMaster University, Universidad Carlos III de Madrid, Maastricht University, Sveriges Riksbank, International Conference on Sovereign Bond Markets, Annual Meeting of the Central Bank Research Association, Portuguese Financial Network Conference, European Economic Association, University of Cologne, SWFA Annual Conference, International Conference of the French Finance Association, RCEA Conference, Future Finance Fest (scheduled), and SFA (scheduled).


Why on-the-run is an exorbitant privilege? with Hannah Winterberg 
Abstract: The on-the-run / off-the-run yield spread has long been documented for U.S. Treasuries, but, surprisingly, does not exist in other countries. We argue that this is the outcome of the U.S. Dollar being the world's main reserve currency. There needs to be a coordinated agreement for an asset to be considered safe. For the U.S. Dollar, there is more coordination than for safe assets in other developed economies. We show that the demand for U.S. Dollar and U.S. Treasury securities allows the U.S. Treasury to refinance itself below market levels, a phenomenon which we refer to as exorbitant privilege.