The leverage ratio and liquidity in the gilt and repo markets

Bicu, Andreea, Chen, Louisa and Elliott, David (2017) The leverage ratio and liquidity in the gilt and repo markets. Working Paper. Bank of England, London.

Full text not available from this repository.

Abstract

Staff Working Paper No. 690

Market participants have argued that a significant unintended consequence of post-crisis regulatory leverage ratio requirements has been a reduction in the liquidity of fixed income markets. We assess this claim in the context of the gilt (UK government bond) and gilt repo markets. We find that gilt repo liquidity worsened during the period when UK leverage ratio policy was announced, and that gilt liquidity worsened conditional on factors such as funding costs and inventory risk. We also find evidence that gilt repo liquidity has become less resilient. However, evidence from heterogeneity in dealer behaviour is inconclusive regarding a causal link between leverage ratio requirements and the reduction in market liquidity.

Item Type: Reports and working papers (Working Paper)
Schools and Departments: University of Sussex Business School > Business and Management
Subjects: H Social Sciences > HG Finance > HG0178 Liquidity
Depositing User: Joy Blake
Date Deposited: 25 Apr 2018 15:24
Last Modified: 25 Apr 2018 15:26
URI: http://sro.sussex.ac.uk/id/eprint/75412
📧 Request an update