Fed dealer survey shows two-fifths expect increased demand for Treasury intermediation services

Federal Reserve Senior Credit Officer Opinion Survey on Dealer Financing Terms, December 2020

With respect to securities financing transactions, respondents indicated the following:

  • On net, one-third of dealers reported increased demand to fund equities, one-fifth reported increased demand to fund high-grade and high-yield corporate bonds, and one-fifth reported decreased demand to fund commercial mortgage-backed securities (CMBS) (see the exhibit Measures of Demand for Funding and Market Functioning). Demand for funding remained largely unchanged across all other asset classes.
  • Small net fractions of dealers reported easing of funding terms for various types of securities. Most notably, over one-half of dealers reported easing of haircuts for non-agency residential mortgage-backed securities and CMBS. On net, dealers reported that haircuts for agency mortgage-backed securities remained unchanged.
  • A small fraction of dealers reported a decrease in the duration of mark and collateral disputes across all collateral types.
  • Approximately one-third of respondents indicated an improvement in liquidity and market functioning for the high-yield bond and consumer asset-backed securities market. A smaller net fraction of respondents also indicated an improvement for other markets.

With respect to dealers’ expectations of demand by their counterparties and clients for Treasury intermediation services over the next year, dealers reported the following:

  • On net, approximately two-fifths of dealers expected an increase in their counterparties’ and clients’ demand for Treasury intermediation services.
    • Dealers most frequently cited the expected change in Treasury issuance as the most important factor driving the anticipated increase in their counterparties’ and clients’ demand. Federal Reserve asset purchases and changes in counterparties’ and clients’ risk assessments of the Treasury market were cited as the second and third most important factors, respectively.
    • One-third of all dealers reported that they expect to increase the amount of capital or funds committed to Treasury intermediation.

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