Treasury coupon issuance expanded major dealers’ balance sheets by about 21 cents for every dollar issued on settlement days, Federal Reserve Board research published Oct. 30 found.
About two-thirds of that increase came from clients’ demand for financing, the authors found. Their FEDS Notes publication, “Treasury Issuance and Dealer Balance Sheets,” found that financing demand outlasted the increase in dealers’ own holdings.
The authors, Jonathan Glicoes, Lubomir Petrasek, Zack Saravay and Mary Tian, said issuance brought Treasury trading desks closer to internal risk limits. That reduced their spare capacity to handle transactions, while Treasury buybacks reduced inventories and use of those limits.
The research used daily holdings and financing data for the eight largest dealers affiliated with global systemically important banks. Its main estimates covered Jan. 1, 2016, through June 30, 2025, combining regulatory liquidity reports with Treasury Department auction data.
For each dollar of coupon securities issued, dealers’ holdings rose about 8 cents, while borrowing and lending through repurchase agreements each rose about 13 cents, the authors found. These agreements, known as repo, provide short-term loans backed by securities.
The authors found smaller increases in holdings and borrowing after Treasury bill issuance. They said dealers typically passed bills to clients quickly and clients were less likely to finance those purchases through repo.
The effects often grew during periods when the central bank reduced its securities holdings, the authors found. They said clients then held more newly issued debt, increasing their need for dealers to handle transactions and provide financing.
During the first such period, from October 2017 through July 2019, dealer holdings rose an additional 3.3 cents for each dollar of coupon issuance compared with other periods. During the second, borrowing and lending each rose about 13 cents more.
The authors measured that second period from June 2022 through June 2025, when their sample ended. They linked the greater financing sensitivity partly to investment funds buying more issuance and hedge funds using borrowed money for trades involving Treasury securities.
A separate analysis combined dealer reports with regulatory transaction records to track purchases and sales around auctions and issuance. The authors examined activity from March 2016 through July 2025 and found that dealers sold most auction allocations before receiving the securities.
Although dealers’ share of auction allocations declined over the past decade, they still took about half of bill issuance and a fifth of coupon issuance, the authors found. Presales meant only part of those purchases reached dealer balance sheets.
The authors found that the increase in coupon holdings faded within roughly three days after issuance. Their broader finding was that inventory effects generally disappeared within three to five days, while financing demand appeared more persistent, prolonging the effect on dealer balance sheets.
