Analyst Reports

Daily Commentary 09012026

Sim FOMC

AI and large language models are already used to analyze and characterize Fed speeches. They can accurately sort commentary by hawkishness and mimic human reasoning. But AI FOMC simulations are less accurate than mechanical models. Modeling FOMC deliberations turns out to be harder than classifying their commentary.

Daily Commentary 08282026

Key principles rather than forward guidance

Fed Chair Warsh laid out his criticism of forward guidance and provided some clues about what a more data-dependent Fed will be watching. However, these are more “key principles” than a contingent or scenario-based reaction function.

Interest Rates Weekly, August 28, 2026

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Daily Commentary 08/25/2026

Increasing buyback firepower

We think the Treasury could increase its buyback capacity without necessarily increasing bill issuance by drawing on some of its surplus cash. Term buybacks totaling $100bn could be added to its existing cash management buyback operations.

Interest Rates Weekly - August 21, 2026

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Interest Rates Weekly, August 14, 2026

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Intraday repo

Although intraday activity is light, we think this could grow to as much as $1trn or roughly 1/3 of overnight SOFR volumes. But while the demand to manage liquidity and collateral more efficiently is strong, wider adoption requires more operational development.

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Interest Rates Weekly, August 7, 2026

AI capital expenditures

For all the headlines about the AI buildout and the race between hyperscalers, the GDP data show relatively modest growth. We explore the accounting differences and look at the volume of financing they are raising in debt, loan, and equity markets.

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Daily Commentary

Interest Rates Weekly, July 31, 2026

Forecast Table

Investing Treasury's cash

This month’s quarterly refunding returns to a topic reviewed in May – should the Treasury invest a portion of its daily cash balance directly into the repo market? The Treasury’s potential earnings are small and it is unclear that shifting daily volatility from the Treasury’s account to repo rates is an improvement over the status quo.

Interest Rates Weekly, July 24, 2026

Monthly Chartbook (July 2026)

Magical Thinking

Politicians and policymakers expect inflation to return to 2%, but we doubt this will happen on its own. Something must change the tide of current inflation dynamics. As with Newton’s Law of Inertia, inflation will continue to move at a constant velocity (or potentially trend higher) unless acted upon by an external force, in this case interest rates.

Dash for cash: Liquidity recycling during the Iran conflict

The FHLBs play a key role in recycling liquidity between money funds and banks through discount notes and advances. While we see some evidence of a dash for cash following the Iran conflict it is difficult to separate the effect from a stronger economy and demand for working capital.

Interest Rates Weekly July 16, 2026

Rangebound cash futures basis

The Treasury cash futures basis trade has been range-bound since early 2025. We think lower intermediation costs from the expansion in sponsored repo has offset other influences to keep the basis narrow. But margin costs and uncertainty about potential changes in the size and composition of the Fed’s balance could push the cash futures basis out of its current range.      

Interest Rates Weekly July 9, 2026

Synthetic stablecoins and DeFi leverage

Synthetic stablecoins maintain par through arbitrage rather than a portfolio of liquid assets. The tokens are used in DeFi “repo-like” staking and borrowing transactions to create leverage. But DeFi is vulnerable to price spirals which synthetic stablecoins can reinforce.

Daily Commentary

Daily Commentary

Daily Commentary

Interest Rates Weekly June 26, 2026

Tokenizing repo

Daily Commentary

Forward guidance: Misguided or misjudged?

The FOMC statement and the new Chair’s press conference indicate that the Fed is moving away from providing forward guidance. But criticism of forward guidance may be overstated. The slow policy response in 2022 reflected policy assumptions based on the post-GFC recovery. Guidance may work better if it is more data contingent. Ironically, this might require more Fed communication.

Daily Commentary

Monthly Chartbook (Jun 2026)

Interest Rates Weekly June 18, 2026

Mind the tax gap

In 2022, the Treasury estimated it collected just 87% of the taxes it was owed – missing about $600bn in additional revenue. The biggest source of this gap is underreported income – particularly from the self-employed and gig workers. As this type of work grows, the Treasury’s AI models are becoming more sophisticated.

Interest Rates Weekly June 12, 2026

Interest Rates Weekly June 5, 2026

Interest Rates Weekly May 29, 2026

Tokenizing repo: Just-in-time funding?

Shifting repo transactions onto distributed ledger (DLT) blockchains promises significant efficiencies. But much of the current focus is on using blockchains to increase intraday repo trading.

Interest Rates Weekly May 22, 2026

Monthly Chartbook (May 2026)

Can workers be AI-retrained?

Monetary policy is ill-suited to address structural unemployment caused by AI. While fiscal policy in the form of job retraining works better, historical program results are mixed.

Why the Fed May Have to Hike at Least 100bp

The Fed has an inflation problem. Prices are rising well above their 2% target for both the headline and core series. The lagged effects of surging energy costs, in addition to other energy-sensitive commodities, mean the economy has yet to experience the full effects of the recent supply side shock. In other words, the inflation readings are going to get worse from here, not better. However, there are several ways the Fed can deal with or react to today’s thorny inflation problem.

Interest Rates Weekly May 15, 2026

Interest Rate Weekly May 8, 2026

Job AI-nxieties

Task studies point to significant productivity gains from AI suggesting large potential technological unemployment. However, evidence of AI job displacement is scarce, and our sense is that some of the fear may be overstated.

Interest Rates Weekly May 1, 2026

R&D cash smoothing

At the end of December, non-financial corporate businesses held nearly $6.2trn in cash instruments. Large balances help smooth out R&D expenditures for firms facing cash flow and external financing uncertainty.

Interest Rates Weekly April 24, 2026

Capping the Treasury's cash account

Since the Warsh nomination, there has been more discussion of ways to shrink the size of the Fed’s balance sheet. One proposal which does not directly address bank reserve demand might be to cap the size of the Treasury’s account on the Fed’s balance sheet.

Interest Rates Weekly April 17, 2026

Monthly Chartbook (Apr 2026)

Non-financial CP: Still strong

Non-financial CP rates have increased since the Iran-conflict began. But despite higher rates, non-financial outstandings are near-record levels and daily issuance remains solid.

Interest Rates Weekly April 10, 2026

GSIB risk score changes

Along with the Basel III proposal, the Federal Reverse is considering changes to the formulas large banks use to calculate their systemic risk, freeing up bank capital.1 In particular, we expect changes to the short-term wholesale funding (STWF) component could increase GSIB repo lending against Treasury collateral although they already do a significant volume of these trades.

Interest Rates Weekly April 2, 2026

Investor immobilization

Unlike in other markets, the Iran conflict has so far hardly created a ripple in short-term funding markets. Outside of the shift in policy expectations, there has been no defensive ‘dash for cash.’ But traditional measures of liquidity flight are distorted by the mid-April tax payment deadline. Could stablecoins provide more information?

Interest Rate Weekly March 27, 2026

Basel III: Market implications

While Basel III is expected to reduce overall bank tier 1 capital requirements, its effects on trading activity and market risk are more nuanced. The new rules will increase capital required for some types of trades and securities.1 But, capital will become less pro-cyclical.

Interest Rate Weekly March 20, 2026

Margin liquidity linkages

Increased market volatility could lead to an increase in margin requirements which in turn might pressure funding liquidity. We consider two margin shocks – COVID and the Ukraine invasion – to illustrate the severity of the margin/funding linkage.

Interest Rates Weekly March 13, 2026

Interest Rates Weekly March 6, 2026

Monthly Chartbook (Mar 2026)

Is AI displacing jobs?

Like any general-purpose technology, AI can both augment and substitute labor. Most studies point to some degree of job displacement. These effects appear greatest for younger workers just entering the labor force. Evidence of complementary effects on worker earnings is weak.

Interest Rates Weekly February 27, 2026

Tiering up: Reserve dieting

To shrink its balance sheet, the Fed must reduce bank demand for reserves. Tiering reserve remuneration, if carefully calibrated, might allow the Fed to slim down.

Interest Rates Weekly February 20, 2026

Interest Rates Weekly February 13, 2026

Monthly Chartbook (Feb 2026)

Clearing and the SOFR rate

With nearly $2trn in daily uncleared repo volume set to clear next summer what will happen to the level of the SOFR rate?

Interest Rates Strategy February 6, 2026

New Chair, new policy?

The new Fed Chair’s views on QE and the size of the Fed’s balance sheet have been well-telegraphed. But what can be changed?

Interest Rates Weekly January 30, 2026

Interest Rates Weekly January 23, 2026

Estimating hedge funds' Treasury swap activity

Hedge funds’ long Treasury positions have more than doubled since the pandemic. Much of this growth has occurred since late last year and likely reflects relative value trades keyed to expectations of SLR relief. The long cash positions require growing amounts of repo funding.

Monthly Chartbook (Jan 2026)

Interest Rate Weekly January 16, 2026

Should the Treasury (re)consider issuing a SOFR-FRN?

The Treasury’s quarterly financing survey asked primary dealers about the merits of issuing a floating rate note (FRN) tied to SOFR. While there is strong demand for the Treasury’s existing FRN, we are skeptical it makes sense to issue a SOFR-based security.

Where is AI Productivity

Task studies involving AI use at work point to significant time savings. Yet, measured non-farm productivity is growing close to its long-term average and only modestly faster than its pre-COVID pace.

Interest Rates Weekly January 9, 2026

Gradations of ampleness

The December FOMC minutes provide some insight into how the Committee sees ample reserves and its expectations for SRP use. “Various” FOMC members would like a more exact definition of ampleness. And they expect the SRP to be used when it makes economic sense.

Short-term interest rates primer (2026)

We review the mechanics of Fed policy, repo markets, and the debt among other topics.

Managing surplus reserves

The Fed’s reserve management purchases (RMPs) will begin this month. The size and variability of these operations are meant to fine tune an efficiently sized balance sheet where overnight rates are close to IORB.

Monthly Chartbook (Dec 2025)

A perspective on PORTs

In a recent Brookings piece, Duffie and Wilson propose a novel Treasury security that could both serve as stablecoin collateral and, in tokenized form, become a settlement asset.1 We consider some structural impediments to its creation and use. PORTs are perpetual overnight rate Treasury securities.

How are workers using AI?

AI promises to enhance worker productivity. But how are workers using it? We examine surveys and ChatGPT queries to gain insights on adoption and task usage. Adoption appears highest among highly-paid professionals. The technology is largely used to gather and process information as an aide to decision making.

Stablecoins and a lower r*

Will the demand for stablecoins pull the economy’s equilibrium interest rate, r* lower? This may depend on how widely the payment tokens are adopted outside the US and the degree to which they remain collateralized with Treasuries. A lower equilibrium rate may require more bills on the Fed’s balance sheet.

Monthly Chartbook (Nov 2025)

Optimal Treasury maturities

The current mix of coupons and bills is probably close to optimal given the Treasury’s goal of minimizing debt service costs and their volatility. But this mix may be less efficient if growth slows or inflation rises. Instead, a more conservative approach might include more 2-7y coupon issuance and fewer bills.

After QT: The case for bills

With QT soon ending, the Fed will turn its focus toward the optimal size and composition of its securities portfolio. We expect the Fed will increase its bill holdings but how quickly and how bill heavy it wishes to make the portfolio may be determined at this week’s FOMC meeting.

Ending QT: Repo pressure

We are a bit surprised with the recent pick-up in SRF usage and the level of tri-party repo rates given the level of reserves and market liquidity. That said, we think the conditions for an efficiently sized Federal Reserve balance sheet have been met and the FOMC can end QT at its December meeting.

Monthly Chartbook (Oct 2025)

Overnight funding risk

Cleared repo activity has traditionally had a higher concentration of overnight trades then uncleared activity. As the market shifts to mandated clearing, will a higher concentration of overnight trades make it more vulnerable to shocks in overnight rates?

Monthly Chartbook (Sep 2025)

Digital dollarization

The dollar’s share of foreign exchange reserves has fallen over the last decade. Could stablecoins boost offshore (retail) demand for the dollar and what might this mean for near-substitutes?

Revising the GSIB risk score

Large banks’ systemic risks scores rose somewhat atypically in Q2’ 25 with across the board increases in the sub-components. The Federal Reserve’s plans to reform the risk metric have been tabled since 2023. We expect these will eventually be approved but implementation may still be a couple of years away.

Higher leverage and no haircut

The buildup of financial market leverage has been a key regulatory concern since the financial crisis. This was reiterated in the July FOMC minutes. Leverage can build up if dealers do not collect haircuts on their secured lending. But how prevalent is no haircut repo?

Revising the dots

The Fed’s policy framework review is due later this summer. Part of the review has focused ways to improve Fed communications. We think the Fed could make a few changes to the way it presents the fed funds dot plot to emphasize policy uncertainty.

Sponsored repo: Signing up more partners

Sponsored repo volumes have nearly doubled in the last year with money funds providing 65% of the cash lent. Over the next year, we look for volumes to rise further but sponsored client onboarding remains challenging.

Hedge fund liquidity

Hedge fund balances have grown rapidly in the past year. Regulators have focused on leverage and certain types of relative value trades. We examine recent trends in the liquidity of their portfolios and financing.

Replacing the fed funds target

Is it time to replace the fed funds rate as the Fed’s policy lever? This depends on how the Fed sees the role of the rate – as a signaling device or as a liquidity monitoring tool.

SLR relief and repo activity

The Fed and other bank regulators have released a SLR relief proposal for public comment. Much of the market’s focus has been on the net incremental bank demand for Treasuries. But we think an equally important question is the extent GSIBs can expand their intermediation capacity to support secondary market liquidity