Fed survey: 50% of dealers expect greater funding demand from global macro funds as interest rates rise

The March 2022 Senior Credit Officer Opinion Survey on Dealer Financing Terms collected qualitative information on changes in credit terms and conditions in securities financing and over-the-counter (OTC) derivatives markets. In addition to the core questions, the survey included a set of special questions about the potential effects of hypothetical future changes in the interest rate environment on the price and nonprice terms of financing offered by dealers and on the demand for funding from different types of clients. The special questions also asked about how different classes of clients are positioned for such changes. The 23 institutions participating in the survey account for almost all dealer financing of dollar-denominated securities to non-dealers and are the most active intermediaries in OTC derivatives markets. The survey was conducted between February 8, 2022, and February 22, 2022. The core questions asked about changes between December 2021 and February 2022.

The upward parallel yield curve shift scenario assumed an upward parallel shift in the Treasury yield curve over the first half of 2022 with 2-year and 10-year Treasury yields increasing 50 basis points from the levels observed at the end of January 2022 by July 2022. With respect to this scenario, dealers reported the following:

  • Approximately one-fifth of respondents, on net, indicated that both price and nonprice terms offered to clients would tighten somewhat under the scenario.
  • A net fraction of about one-fourth of respondents indicated that insurance companies as well as pension plans and endowments were more typically net long with respect to this scenario than net short. For other client types, the fraction of respondents reporting that more clients were net long than net short was similar to the fraction reporting the opposite.
  • Nearly one-half of dealers, on net, expected somewhat increased demand for funding from global macro hedge funds under this scenario. Approximately two-fifths of respondents, on net, expected somewhat increased demand for funding from insurance companies and fixed income arbitrage hedge funds, and one-fourth expected somewhat increased demand for funding from trading real estate investment trusts and nonfinancial corporations.

The full survey results are available at https://www.federalreserve.gov/data/scoos/scoos-202203.htm

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