NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Zhaogang Song

The Johns Hopkins Carey
Business School
100 International Drive
Baltimore, MD 21202

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Johns Hopkins University

NBER Working Papers and Publications

June 2020Treasury Inconvenience Yields during the COVID-19 Crisis
with Zhiguo He, Stefan Nagel: w27416
In sharp contrast to most previous crisis episodes, the Treasury market experienced severe stress and illiquidity during the COVID-19 crisis, raising concerns that the safe-haven status of U.S. Treasuries may be eroding. We document large shifts in Treasury ownership during this period and the accumulation of Treasury and reverse repo positions on dealer balance sheets. To understand the pricing consequences, we build a model in which balance sheet constraints of dealers and demand/supply shocks from habitat agents determine the term structure of Treasury yields. A novel element of our model is the inclusion of levered investors' repo financing as part of dealers' intermediation activities. Both direct holdings of Treasuries and reverse repo positions of dealers are subject to a regulatory...
November 2019Commonality in Credit Spread Changes: Dealer Inventory and Intermediary Distress
with Zhiguo He, Paymon Khorrami: w26494
Two intermediary-based factors - a broad financial distress measure and a dealer corporate bond inventory measure - explain about 50% of the puzzling common variation of credit spread changes beyond canonical structural factors. A simple model, in which intermediaries facing margin constraints absorb supply of assets from customers, accounts for the documented explanatory power and delivers further implications with empirical support. First, whereas bond sorts on margin-related variables (credit rating and leverage) produce monotonic patterns in loadings on intermediary factors, non-margin-related sorts produce no pattern. Second, dealer inventory co-moves with corporate-credit assets only, whereas intermediary distress co-moves even with non-corporate-credit assets. Third, dealers' invent...
June 2016The Value of Trading Relationships in Turbulent Times
with Marco Di Maggio, Amir Kermani: w22332
This paper investigates the ways in which the network of relationships between dealers shapes their trading behavior in the corporate bond market. They charge lower spreads to dealers with whom they have the strongest ties, and this effect is all the more pronounced at times of market turmoil. Moreover, highly connected and systemically important dealers exploit their connections at the expense of peripheral dealers as well as clients, charging higher markups than to other core dealers, especially during periods of uncertainty. We show that following the collapse of a flagship dealer in 2008, trading chains lengthened by almost 20 percent and that the increase was even greater for the institutions that had the closest ties with the defaulted dealer. Finally, we find evidence that dealers d...
 
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