Senior Credit Officer Opinion Survey on Dealer Financing Terms, June 2024
Dealers’ Treasury market intermediation activities, including both outright holdings and the provision of secured financing collateralized by Treasury securities, have increased notably over the past two years. In these special questions, dealers were asked about their capacity to intermediate Treasury securities, broadly defined as the ability to provide Treasury intermediation services to meet the demand of counterparties and clients in normal times and during periods of market stress. The first set of questions asked about dealers’ capacity to provide secured financing transactions collateralized by Treasury securities. A second set of questions asked about their capacity to use balance sheet to provide immediacy of execution in Treasury securities markets.
With respect to their capacity to provide secured financing transactions collateralized by Treasury securities, dealers reported the following:
- All respondents reported that they are currently active in providing secured financing collateralized by Treasury securities to counterparties and clients.
- Almost two-thirds of respondents reported that their capacity to provide secured financing collateralized by Treasury securities has increased over the past two years, and the remainder reported that their capacity has remained basically unchanged. Of those respondents who reported an increase, over one-half cited increased demand for this financing as the most important reason for the increase. Most also cited increased availability of balance sheet capital and increased participation in sponsored repurchase agreements (repos) or reverse repos as important reasons.
- About three-fourths of respondents indicated that they expect their counterparties’ demand for secured financing collateralized by Treasury securities to increase over the next year. About one-half of respondents who expect an increase in demand cited changes in Treasury issuance as the most important reason for the increase, while almost one-third cited changes to the interest rate outlook as most important. About one-half of respondents who expect an increase in demand also cited changes in Federal Reserve securities holdings and changes in the composition of Treasury market investors as important reasons.
- Of the respondents who expect an increase in the demand for secured financing collateralized by Treasury securities over the next year, about three-fifths plan to increase their capacity to provide such financing. The respondents planning to increase their capacity reported planning a number of changes, including increasing the amount of capital or funds committed, increasing internal risk limits, and increasing the frequency at which these factors are reevaluated. Almost all of these respondents cited increased participation in sponsored repos or reverse repos as very important in supporting increased financing capacity over the next year. About three-fourths of these dealers also cited increased availability of balance sheet capital and increased central clearing of Treasury repo as very or somewhat important factors.
- Of the respondents who expect an increase in the demand for secured financing collateralized by Treasury securities over the next year, about two-fifths said that they plan to make no change to their capacity to provide such financing. Of these respondents, about three-fourths cited decreased availability of balance sheet capital as a very important factor limiting their ability to increase capacity. Most of these dealers also cited as important factors their decreased willingness to take on risk, decreased participation in sponsored repos or reverse repos, and decreased central clearing of Treasury repo.
The full survey results are available at https://www.federalreserve.gov/data/scoos/scoos-202406.htm