OFR Working Paper Finds Hedge Fund Exposures are Related to Treasury Yield Changes
Office of Financial Research sent this bulletin at 08/23/2022 10:05 AM EDT
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The increasing importance of non-bank financial intermediaries has raised new questions about the risks that hedge funds' activities pose to the stability of the financial system.
A working paper published today by the Office of Financial Research looks at the role that changes in hedge fund exposures play in driving U.S. Treasury prices and the yield curve. Using confidential hedge fund data from the Securities and Exchange Commission, the authors calculated hedge funds' aggregate, net Treasury exposures, and their fluctuations over time.
The authors found significant and robust evidence that changes in hedge fund exposures are related to Treasury yield changes. Furthermore, the working paper shows that particular strategy groups and lower-levered hedge funds display a larger estimated price impact on Treasuries. Finally, asset pricing tests show that U.S. Treasury investors demand additional return compensation due to risks associated with hedge fund demand.
The working paper can be found here.
The OFR home page is: https://www.financialresearch.gov/.
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