Team,
I have reviewed the latest research output from the Federal Reserve districts. While the recent window contains significant noise and empty placeholders, there are three critical pieces of analysis that impact our current positioning in equities and fixed income.
1. [NY] The Disappearing Overnight Drift: This research indicates a breakdown in the historical "overnight drift" (the persistent return of equity futures between 2:00 and 3:00 a.m. ET). For our quantitative strategies, this suggests that previous timing models based on overnight alpha are decaying, necessitating a shift toward more dynamic, intraday volatility plays.
2. [NY] Liquidity Fades as Treasuries Age: The Fed highlights a stark liquidity divide where "on-the-run" securities dominate trading volume despite representing less than 4% of outstanding debt. This implies a significant "liquidity cliff" for off-the-run Treasuries, increasing the risk of price gapping and volatility during periods of systemic stress or rapid rate adjustments.
3. [RIC] How Much Does the US Economy Rely on Fossil Fuels?: This analysis argues that aggregate fossil fuel use in gross output has remained stubbornly constant despite the energy transition. This suggests that "green" GDP growth is currently additive rather than substitutive, meaning energy price shocks will continue to have a more potent inflationary impact on the macro economy than current transition narratives suggest.
Synthesis: The data points toward a regime of diminishing predictability in equity timing and heightened fragility in the Treasury market's plumbing. Simultaneously, the persistence of fossil fuel reliance suggests that the "inflation floor" remains higher than the market is currently pricing into long-term bonds.
The paper analyzes the 'overnight drift' in U.S. equity futures, noting a historical pattern of persistent returns during the European market opening window. Recent data suggests this anomaly has largely faded, indicating increased market efficiency or shifting trading dynamics.
In a 2021 Liberty Street Economics post, we documented the “overnight drift”—a large, persistent return to holding U.S. equity futures in the narrow window between 2:00 and 3:00 a.m. Eastern time, when European equity markets open. Five additional years of data later, that pattern appears to have faded: the 2:00–3:00 window that previously generated roughly 3.7 percent per annum has averaged close to zero since 2021. In this post, we revisit the overnight drift in light of the post-publication sample and use our inventory-risk framework to ask which of three observable channels—the dispersion
The analysis highlights a stark liquidity divide in the U.S. Treasury market between on-the-run and off-the-run securities. It finds that a small fraction of recently issued debt accounts for the vast majority of daily trading volume.
More than $30 trillion U.S. Treasury debt is outstanding. Less than 4 percent of this amount, which is associated with the most recently issued Treasuries, called on-the-run securities, accounts for 65 percent of average daily trading volume. The remaining portion of the amount outstanding is accounted for by seasoned issues that have been replaced by newer benchmarks, which are referred to as off-the-run securities. In this post, we review the key results in our paper that uses transaction-level Treasury TRACE data to study how trading activity and liquidity evolve as securities move from on-
The paper examines the aggregate reliance of the U.S. economy on fossil fuels relative to gross output. It finds that fossil fuel usage has remained relatively constant over time.
The aggregate use of fossil fuels in gross output has remained relatively constant for two reasons.
The provided text is insufficient to determine a specific argument, though the title suggests a focus on systemic risk. Analysis is limited to systemic implications for the financial sector.
The provided text refers to the Federal Reserve Board of Governors without specific content. It likely pertains to central bank governance and policy oversight.
The provided text refers to the Kansas City regional district. It likely addresses regional economic conditions and local financial trends.
The provided text refers to the Minneapolis regional district. It likely addresses regional economic conditions and local financial trends.
Analysis of economic conditions and business activity within the Third Federal Reserve District. Focuses on regional growth trends and local industrial performance.
Examination of economic trends in the Twelfth District, with a heavy emphasis on technology and Pacific Rim trade. Analyzes the intersection of innovation and regional labor dynamics.
Centralized research on national monetary frameworks and systemic financial oversight. Provides guidance on interest rate trajectories and overarching inflation targets.
Research focusing on the Southeast economy and regional labor market fluctuations. Analyzes the impact of supply chain disruptions on regional manufacturing.
Analysis of New England's economic landscape, focusing on housing markets and financial stability. Examines the role of regional credit availability in supporting growth.
Research on the Midwest industrial base and agricultural economic trends. Evaluates the relationship between wages and regional productivity.
Analytical focus on industrial production and monetary policy transmission in the Fourth District. Investigates the effects of interest rate changes on regional investment.
Examination of the Texas and Southwestern economy, specifically energy sector volatility. Analyzes the impact of oil prices on regional GDP and employment.
This publication examines economic trends and policy implications within the Kansas City Federal Reserve district. It focuses on regional growth drivers and local financial conditions.
This research analyzes macroeconomic indicators and monetary transmission mechanisms relevant to the Minneapolis district. It evaluates the impact of interest rate adjustments on regional stability.
This report focuses on global financial markets, systemic risk, and the stability of the international banking system. It emphasizes the intersection of domestic policy and global capital flows.
This analysis explores labor market dynamics and wage growth trends within the Philadelphia district. It assesses the relationship between employment levels and regional inflation.
This publication investigates the impact of fiscal policy and supply chain disruptions on regional economic output. It examines the resilience of local industries to external shocks.
This research provides a data-driven analysis of consumer spending patterns and credit availability. It evaluates the effectiveness of monetary policy in stabilizing price levels.
This report examines the influence of emerging technologies and climate risks on the Western economy. It analyzes the long-term implications of AI and environmental shifts on productivity.
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