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Executive Summary

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SIFMA Insights: US Fixed Income Market Structure Primer

July 2018

Executive Summary


Contents

Executive Summary ................................................................................................................................................................................... 4

Breaking Out the US Fixed Income Markets .............................................................................................................................................. 5

Not One-Size Fits-All .................................................................................................................................................................................. 5

The Electronification of Markets ................................................................................................................................................................. 6

The Role of Primary Dealers ...................................................................................................................................................................... 8

Current Market Landscape ......................................................................................................................................................................... 9

Chartbook ................................................................................................................................................................................................. 10

Market Breakout: US Treasuries .............................................................................................................................................................. 13

Description and Purpose of Markets ........................................................................................................................................................ 13

Current Market Landscape ....................................................................................................................................................................... 13

Chartbook ................................................................................................................................................................................................. 14

Market Breakout: MBS ............................................................................................................................................................................. 23



Chartbook ................................................................................................................................................................................................. 24

Market Breakout: Corporates ................................................................................................................................................................... 32



Chartbook ................................................................................................................................................................................................. 33

Market Breakout: Munis............................................................................................................................................................................ 40



Chartbook ................................................................................................................................................................................................. 41

Market Breakout: Agency ......................................................................................................................................................................... 49



Chartbook ................................................................................................................................................................................................. 50

Market Breakout: ABS .............................................................................................................................................................................. 56



Chartbook ................................................................................................................................................................................................. 57

Executive Summary


Market Breakout: Money Markets ............................................................................................................................................................. 63



Chartbook ................................................................................................................................................................................................. 65

Market Breakout: Repo............................................................................................................................................................................. 67


Source: Federal Reserve Bank of New York ............................................................................................................................................ 68

Chartbook ................................................................................................................................................................................................. 69

Appendix: Current Primary Dealer List ..................................................................................................................................................... 73

Appendix: Terms to Know ........................................................................................................................................................................ 74

Appendix: Credit Ratings Scale ................................................................................................................................................................ 76

Appendix: Sources and Notes to Data ..................................................................................................................................................... 77

Authors ..................................................................................................................................................................................................... 82

SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million

employees provide access to the capital markets, raising over $2.9 trillion for businesses and municipalities in the U.S., serving clients

with over $20 trillion in assets and managing more than $72 trillion in assets for individual and institutional clients including mutual funds

and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial

Markets Association (GFMA). For more information, visit http://www.sifma.org.

This report is subject to the Terms of Use applicable to SIFMA’s website, available at http://www.sifma.org/legal.

Copyright © 2018

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The SIFMA Insights primer series, and other Insights reports, can be found at: https://www.sifma.org/insights

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Executive Summary


Executive Summary

The U.S. fixed income markets are the largest in the world, comprising 39% of the $100 trillion securities

outstanding across the globe, or $39 trillion.

Source: Bank of International Settlements

Note: As of FY17

U.S. capital markets (fixed income and equity) are a critical source of capital for businesses and governments

(federal, state and local), funding 65% of total U.S. economic activity. Debt capital markets – providing a more

efficient, stable and less restrictive form of borrowing for corporations – are the more prevalent fuel for growth in the

U.S., while bank lending prevails in other regions (80%/20% in the U.S., reversed in other developed markets).

Fixed income markets are an integral component to economic growth, providing efficient, long term and cost

effective funding for governments and companies. This enables them to expand, innovate and provide goods and

services society demands.

We have seen a transformation in fixed income markets since the crisis, historically bilateral and performed by

banks. Post-crisis regulatory constraints on balance sheets have forced banks to pull back from some fixed income

activities. This is coupled with volatility at sustained lows across multiple asset classes and a divergence in central

bank policy, as rates begin to rise in the U.S. yet remain low in most other developed nations. To continue servicing

clients’ needs, markets had to be innovative and leverage product innovation and technology. This led to growth in

ETFs and other passive investments as a way for investors to achieve their financial goals. The market landscape

has also enabled the development and adoption of electronic market makers, albeit gradual and varying by type of

security.

US, 39%

EU, 22%

Japan, 13%

China, 12%

UK, 6%

Canada, 2%

EM, 2%

Australia, 2% HK, 0.5%

Other DM, 0.5%

Singapore, 0.4%

$100T Global FI Markets

Breaking Out the US Fixed Income Markets



Not One-Size Fits-All

In general, fixed income securities are borrowed capital for the issuer, transferring funds from those that have it to

those that need it. These borrowings are used to fund government operations, public projects or corporate

investments, thereby fueling economic growth. The buyer of these securities does not receive ownership in the

issuing entity, as the debt is repaid at a specified time (repayment of principal). The return for investor comes in

interest payments (fee charged for lending the money) at a fixed amount on specified time periods, usually

semiannually. Fixed income markets include debt securities, repo instruments and securitized products based on

underlying debt securities. The diversity of fixed income products both increases the amount of funds available to

borrow and spreads credit risk across multiple market participants.

It is important to note we write fixed income markets as plural for a reason. There is not one market, but several

markets based on multiple subcategories within each main category, which we break out as (listed in order of size of

markets): U.S. Treasuries, mortgage-backed securities (MBS), corporates, munis, agency, asset-backed securities

(ABS) and money markets. The UST and agency markets are referred to as the rates markets, as valuation and

bondholder risk is tied to interest rates. The remaining credit markets bring both interest rate and credit risk, or the

probability of the borrower defaulting. There are also repos, which aid secondary market liquidity for the cash

markets (for example, UST), allowing dealers to act as market makers in a very efficient manner.

Different markets have multiple sub categories – for example, large companies can have over 40 types of bond

(callable, convertible, etc.), and there are public versus private markets for some fixed income segments – which

serve different purposes. Fixed income products do not necessarily trade on exchanges (albeit some products have

moved in this direction, i.e. the electronification of markets) and are not 100% fungible, as investors experience with

U.S. cash equities. For example, a large corporation may have ~1,500 CUSIPs versus only one stock. Therefore,

there is no one-size-fits-all way to describe market structure for fixed income securities.

Primary markets, or new issuance, often dominate secondary market trading volumes, acting as an important piece

of price discovery for markets. While we look at primary and secondary markets separately in this report, they are

symbiotic in nature. Efficiently functioning primary markets maintain the depth and liquidity in secondary markets.

Healthy secondary markets give issuers confidence their needs will be met at a good price level in the markets

when issuing bonds, as they receive a liquidity premium at issuance when there is a liquid secondary market. This

enables new issuance, while less liquid secondary markets act as essentially a tax on issuance., i.e. problems on

one side of the equation could bring negative consequences to the other side.

This report analyzes how the various segments of the fixed income markets have recovered since the financial

crisis. We assess the multiple sub categories within each main category across (when available): outstanding,

issuance and average daily trading volume. We note growth in dollars outstanding is a factor of net new issuance

and market value appreciation. (Please see the Appendix for sources and notes on all data in this report.)



The Electronification of Markets

Historically, fixed income instruments traded in over-the-counter (OTC) markets, dominated by dealers interacting

with clients by voice (human interaction, not electronic). The markets were segmented by dealer-to-dealer (D2D)

and dealer-to-client (D2C) trading. Clients looking to trade would call up dealers and request available prices, i.e. a

quote-driven market. Trading did not take place on an organized exchange (albeit the New York Stock Exchange

traded government bonds far back in the 1800s). As such, only the counterparties knew deal details (prices,

volumes, etc.), causing prices to range widely across dealers.

Source: Bank for International Settlements (BIS), SIFMA estimates

The electronification of markets (diagramed on the next page) indicates the increasing percentage of trading

performed on electronic trading platforms (ETPs). Electronic trading – the matching of counterparties in the

negotiation or execution stages via an ETP – can take place in various forms, differing by trade protocols and types

of end users. Electronic trading started in the late 1990s in the D2D markets, acting as order-driven markets often

using central limit order book protocols (CLOB; storing bids and offers in a queue which is executed in a priority

sequence). This increased price transparency, while maintaining the anonymity of counterparties. It took two

predominant forms: (1) single-dealer platforms (SDP), an electronic version of the bilateral trading relationship, and

(2) multi-dealer platforms (MDP), enabling clients to request quotes from multiple dealers instantaneously. D2C

trading is generally based on request for quote (RFQ) protocols.

Current growth is in D2C markets, which is enabling the total growth in overall electronification percentages (global

totals shown on the following page): UST 70%, Agency 50%, Repos 50%, IG Corporates 40% and HY Corporates

25%.

Historical OTC Markets

IDB(voice)

DealerDealer

Clients

https://www.bis.org/publ/mktc07.pdf



Source: Bank for International Settlements (BIS), SIFMA estimates

Note: As of FY15. CDS = credit default swap; FX = foreign exchange; IRS = interest rate swap; EGB = European government bond; IG = investment

grade; HY = high-yield. SDP = single-dealer platform; MDP = multi-dealer platform. Global totals may be greater than US-only figures in certain markets.

SDP MDP

Electronification of Markets

Inter-Dealer Platform

Voice Broker

Principal Trading Firms

DealerDealer

Clients

D2DMarket

D2CMarket

90%

80% 80%

70% 70% 70%

60% 60%55% 55%

50% 50% 50%45%

40% 40%

25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fu

ture

s

Cash

Eq

uitie

s

Ind

ex C

DS

Sp

ot

FX

US

T

Sta

nda

rdiz

ed

IR

S

EG

B

Pre

cio

us M

eta

ls

FX

Fo

rwa

rds

FX

Op

tion

s

Ag

en

cy

Cove

red B

on

ds

Rep

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Sin

gle

-Na

me C

DS

FX

Sw

ap

s

IG C

orp

ora

tes

HY

Corp

ora

tes

Highly Electronic Electronic Becoming Electronic

BIS Global Assessment of Electronification

https://www.bis.org/publ/mktc07.pdf



The Role of Primary Dealers

Another noteworthy factor in fixed income market structure is the use of primary dealers. As trading counterparties

to the Federal Reserve Bank of New York (NY Fed), primary dealers play a crucial role in open market operations,

which supports the implementation of U.S. monetary policy. These firms are expected to be active counterparties for

the NY Fed’s market operations implementing monetary policy and bid, consistent with their pro rata share of the

market, in all Treasury auctions at “reasonably competitive prices.” If a primary dealer is active in agency debt or

agency MBS, it is also expected to participate in any NY Fed operations in these instruments at a level proportionate

with its share in these markets. Primary dealers are eligible to participate in the NY Fed’s securities lending

program, which is designed to help dealers make markets in Treasury securities. Primary dealers play another

important role by providing the NY Fed insight into market developments and ongoing market trends, which it uses

to support the formulation and implementation of monetary policy.

While the number of primary dealers used to be greater than 40, it has since settled in the low 20s (23 as of July

2018). The number troughed in 2008, at 17, as firms went out of business or failed to meet the NY Fed’s eligibility

criteria.

Source: Federal Reserve Bank of New York

39

27

17

23

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

0

5

10

15

20

25

30

35

40# Primary Dealers

https://www.newyorkfed.org/markets/primarydealers



Current Market Landscape

• Product Breakout – As a percent of total outstanding, U.S. fixed income markets are dominated by U.S.

Treasury securities (UST, 35%), then MBS (23%) and corporate bonds (22%). (Remainder: munis 9%,

agency 5%, ABS 4% and MMs 2%.) As a percent of issuance, U.S. fixed income markets are broken out by:

UST 30%, MBS 26%, corporates 22%, agency 10%, ABS 7% and munis 6%.

• Outstanding – Total fixed income outstanding has grown at a 2.8% CAGR from 2008 to 2017, to $40.8

trillion. UST grew at a 9.6% CAGR, to $14.5 trillion, and corporates grew at a 5.0% CAGR, to $8.8 trillion.

MBS have essentially recovered after troughing down 7.7% from the 2008 peak of $9.5 trillion ($9.3 trillion

as of FY17, -1.8% from the 2008 peak). (Remaining CAGRs: Munis +0.5%, ABS -2.3%, Agency -4.9% and

MMs -4.9%.)

• Issuance – Total fixed income issuance has grown at a 1.4% CAGR from 2007 to 2017 (we go back to 2007

because total issuance declined significantly in 2008, -24.1% Y/Y), to $7.5 trillion. As the Fed grew its

balance sheet and corporates capitalized on low interest rates to secure low-cost funding for capital

investments, UST and corporates led issuance growth, +10.4% and +3.4% CAGRs respectively. (Remaining

CAGRs: munis +0.4%, agency -1.2%, MBS -2.1% and ABS -4.5%.)

• ADV – Total fixed income ADV has declined at a 3.1% CAGR from 2008 to 2017, to $764 billion. This was

driven by UST and Agency MBS, -0.9% and -4.9% CAGRs respectively. (Remaining CAGRs: from 2008 to

2017 munis -5.7% and agency -27.6%; from 2011 to 2017 non-agency MBS -7.6% and ABS -0.5%1.)

Note: Data as of FY17.

1 The data set for non-agency MBS and ABS begins in 2011.



Chartbook

Source: SIFMA. As of FY17. Please see the Appendix for details.

UST, 35%

MBS, 23%

Corporates, 22%

Munis, 9%

Agency, 5%

ABS, 4% MMs, 2%

US FI Outstanding, $41T

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US Fixed Income Markets Outstanding ($T)

UST MBS Corporates Munis Agency ABS MMs

16.117.6

18.920.4

22.824.6

27.1

29.331.0

31.933.7 34.2

35.136.2

37.338.3

39.540.8

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US Fixed Income Markets Outstanding ($T)

https://www.sifma.org/resources/archive/research/




UST, 30%

MBS, 26%

Corporates, 22%

Agency, 10%

ABS, 7%

Munis, 6%

US FI Issuance, $7.5T

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US Fixed Income Markets Issuance ($B)

UST MBS Corporates Agency ABS Munis

2,553

4,457

5,388

6,942

5,624 5,775

6,273 6,412

4,867

6,988 7,292

6,228

7,329

6,861

6,342

6,840

7,425 7,478

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US Fixed Income Markets Issuance ($B)





UST, 66%

Agency MBS, 27%

Corporates, 4%

Munis, 1.4%Agency,

0.5%Non-Agency MBS, 0.3%

ABS, 0.2%

US FI ADV, $764 B

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US Fixed Income Markets ADV ($B)

UST Agency MBS Corporates Munis Agency Non-Agency MBS ABS

358

509

631

752

817

919894

1,0151,042

824

899859 849

816

729 729776 764

0

200

400

600

800

1,000

1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US Fixed Income Markets ADV ($B)


Market Breakout: US Treasuries



Description and Purpose of Markets

U.S. Treasury securities (UST) are debt obligations of the federal government used to fund operations. Since UST

are backed by the full faith and credit of the U.S. government, these securities are considered by market participants

as the benchmark credit. The U.S. government has a AAA rating, meaning it has essentially no credit risk and can

easily meet its financial obligations on time and in full. In light of this, UST show a diversity of holders, in both

institutional type and foreign holders.


• Product Breakout – Common types of UST include:

o 61% Treasury Notes (T-Notes) – These are fixed-principal securities with maturities of 2, 3, 5, 7 and

10 years. Interest is paid semiannually, with the principal paid at maturity.

o 14% Treasury Bonds (T-Bonds) – These are fixed-principal, long-term securities issued with a

maturity of 30 years. Outstanding T-bonds have remaining maturities of 10 to 30 years. Interest is

paid semiannually, with the principal paid at maturity.

o 14% Treasury Bills (T-Bills) – Non-interest bearing (zero-coupon) short-term securities with

maturities of only a few days or 4, 13, 26 or 52 weeks. They are purchased at a discount to par

(face) value and paid out at par value at maturity.

o 9% Treasury Inflation Protected Securities (TIPS) – These are indexed to inflation, as measured by

the Consumer Price Index, acting as a hedge against the negative effects of inflation. They come in

5, 10 and 30 year maturities, and interest is paid semiannually. TIPS are considered a low-risk

investment since the par value rises with inflation, while the interest rate remains fixed.

o 2% Floating Rate Notes (FRN) – These are debt instruments with a 2 to 5 year maturity and a

variable interest rate. Its interest rate is tied to a benchmark (U.S. T-Bill rate, Fed Funds rate).

• Outstanding – Total UST outstanding has grown at a 9.6% CAGR since 2008, to $14.5 trillion. T-Bonds

grew at a 12.9% CAGR, to 2.0 trillion, and T-Notes grew at a 12.2% CAGR, to 8.8 trillion. (Remaining

CAGRs: TIPS 9.6%, T-Bills 0.5% and FRNs 20.3%, but the data set only began in 2014.)

• Issuance – Per annum net new issuance declined at an 8.0% CAGR since 2008, to $537 billion. T-Bonds

increased at a 12.1% CAGR, while T-Bills and T-Notes declined at 16.7% and 3.2% CAGRs respectively.

• ADV – UST ADV declined at a 1% CAGR since 2008, to $505 billion. TIPS trading grew at a 7.8% CAGR,

and UST greater than 11 years maturity grew at a 2.7% CAGR. (Remaining CAGRs: T-Bills 2.0%, UST 6 to

11 years maturity 0.1%, UST 3 to 6 years maturity -2.4%, UST less than 3 years maturity -3.7% and FRN

9.7%, with the data set only beginning in 2015.)




Chartbook

Source: SIFMA. Please see the Appendix for details.

3.0 3.0 3.23.6

3.9 4.2 4.3 4.5

5.8

7.3

8.9

9.9

11.0

11.912.5

13.213.9

14.5

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Markets Outstanding ($T)

312 381

572

745 853

746 789 752

1,037

2,075

2,320

2,103

2,305

2,140 2,215

2,122 2,169 2,224

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Markets Issuance ($B)





207

298

366

434

499

555525

570553

408

528

568

519545

504490

519 505

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Markets ADV ($B)

Notes, 61%

Bonds, 14%

Bills, 14%

TIPS, 9%

FRN, 2%

UST Outstanding $14.5 T

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Outstanding by Category ($T)

Notes Bonds Bills TIPS FRN





2,792

4,181

5,572

6,605

7,327 7,882

8,229 8,457 8,659 8,850

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Outstanding, Notes ($B)

592 718

893

1,064

1,240

1,408

1,576 1,725

1,849 1,993

0

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Outstanding, Bonds ($B)

1,861 1,793 1,773

1,521 1,629 1,592

1,458 1,514

1,818 1,956

0

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Outstanding, Bills ($B)

530 568

616

739

850

973

1,078

1,168 1,247

1,328

0

200

400

600

800

1,000

1,200

1,400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Outstanding, TIPS ($B)





191

(45)

527

569

481

343

392

260

483

344

396 363

265

190

286 310

401

172

232

295

349

(11)

197

264 265

(64)

205 227

141

57

133

354

244

(25)

222 255

40 35

192

270

458

-100

0

100

200

300

400

500

600

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

UST Net Issuance ($B)

Notes, 44%

Bonds, 30%

Bills, 26%

UST Net Issuance $2.2 B

-300

-100

100

300

500

700

900

1,100

1,300

1,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Net Issuance ($B)

Notes Bonds Bills





328

1,413 1,417

1,108

792

645 576

457

248 237

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Net Issuance - Notes ($B)

52

137

190 195 199 191 191

172

145

162

0

50

100

150

200

250

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Net Issuance - Bonds ($B)

863

(73)(21)

(252)

108

(37)

(134)

56

304

138

-400

-200

0

200

400

600

800

1,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST Net Issuance - Bills ($B)





<3 Years, 25%

3-6 Years, 24%

6-11 Years, 22%

T-Bills, 18%

>11 Years, 7%

TIPS, 3%FRN, 1%

UST ADV, $505B

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV ($B)

<3 Years 3-6 Years 6-11 Years T-Bills >11 Years TIPS FRN

183

136

163

178

147 147152

134 133125

0

20

40

60

80

100

120

140

160

180

200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV, <3 Years ($B)

151

83

111

135

119130 126

120 123 119

0

20

40

60

80

100

120

140

160

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV, 3-6 Years ($B)





111

87

134 137132

140

118 116 120112

0

20

40

60

80

100

120

140

160

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV, 6-11 Years ($B)

75 76 7773

7881

65 65

85

92

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV, T-Bills ($B)

29

24

32

3634 35

32

4039 38

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV, >11 Years ($B)

8.2

5.2

6.4

9.5

10.9

12.411.4

12.8

16.217.3

0

2

4

6

8

10

12

14

16

18

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UST ADV, TIPS ($B)





7.50%

0.07%

0.95%

8.55%

1.72% 2.33%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Historical US Interest Rates

Spread 3-Month 10-Year

2.30%2.39%

3.08%

2.73%

1.65%

2.29%2.18%

2.09%

1.52%1.38%

1.37%

0.15% 0.14% 0.05% 0.07% 0.06% 0.03% 0.05%

0.32%0.95%

3.67%

3.26% 3.21%

2.79%

1.72%

2.35%2.21% 2.14%

1.84%

2.33%

0%

1%

2%

3%

4%

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Post Crisis US Interest Rates

Spread 3-Month 10-Year




Source: SIFMA, U.S. Department of the Treasury. As of FY17. Please see the Appendix for details.

38%

15%14%

12%

9%

5% 4%2% 1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Fo

reig

n

Mo

ne

tary

Au

thori

ty

Pe

nsio

n F

und

s

MF

s

Ind

ivid

uals

Ba

nks

Sta

te &

Lo

ca

lG

ovt.

Insu

ran

ce

O

the

r

Institutional Holders of UST

19%17%

5%4% 4% 4% 4% 4% 3% 3% 2% 2% 2% 2%

25.0%

0%

5%

10%

15%

20%

25%

30%

Chin

a

Ja

pa

n

Ire

lan

d

Bra

zil

Sw

itzerl

and

UK

Caym

an

s

Luxe

mb

ou

rg

Hon

g K

ong

Ta

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n

Ind

ia

Sa

ud

i A

rabia

Be

lgiu

m

Sin

ga

po

re

Oth

er

Foreign Holders of UST


https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticsec2.aspx

Market Breakout: MBS




A mortgage is a debt instrument collateralized by a specified real estate property(ies). They are used by individuals

and businesses to make large real estate purchases without paying the entire value of the purchase up front. The

borrower repays the loan plus interest either over or at the end of a specified time period.

Since mortgages are less liquid than other investment vehicles, they can be securitized into mortgage-backed

securities (MBS). Securitization is the process of designing a new a financial instrument by packaging several

underlying assets with the same characteristics. A MBS is a security secured by a mortgage or collection of

mortgages, whether in pass-throughs or collateralized mortgage obligations (CMOs). Pass-throughs are structured

as a trust in which mortgage payments are collected and passed through to investors. CMOs consist of multiple

pools of securities, or tranches, which may be given ratings by credit rating agencies


• Product Breakout – Common terms used for MBS include:

o Residential Mortgage (the R in RMBS) – The collateral is the borrower’s house, with the bank getting

the claim on the house should the borrower default.

o Commercial Mortgage (the C in CMBS) – The collateral is the borrower’s commercial property used

for business purposes (office building, shopping centers, apartment complexes, etc.).

o Fixed-Rate Mortgage – The borrower pays the same interest rate for the life of the loan, i.e. monthly

principal and interest payment never change.

o Adjustable-Rate Mortgage (ARM) – The interest rate is fixed for an initial term, but then it fluctuates

with market rates. Monthly payments may change.

o Agency – A MBS issued by Fannie Mae, Freddie Mac, Ginnie Mae.

o Non-Agency – MBS issued by private entities, such as financial institutions.

• Outstanding – Total MBS outstanding is now essentially flat to 2008, with a -0.2% CAGR, to 9.3 trillion

outstanding. There is a definite split between growing total agency issues (2.5% CAGR) versus declines in

total non-agency (-8.6% CAGR) as the private label markets dried up post crisis. (Remaining CAGRs

include: agency MBS 3.4%, agency CMO -2.0%; non-agency CMBS -4.8%, non-agency RMBS -10.4%.)

• Issuance – Total MBS issuance grew at a 3.3% CAGR since 2008, to $1.9 trillion. CAGRs include: agency

2.6%, non-agency 12.1%; agency MBS 1.8%, agency CMO 7.5%; non-agency CMBS 18.8%, non-agency

RMBS 8.8%.




Chartbook


4.1

4.7

5.35.7

6.3

7.2

8.4

9.4 9.5 9.4 9.3 9.18.8 8.7 8.8 8.9 9.0

9.3

0

1

2

3

4

5

6

7

8

9

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Markets Outstanding ($T)

780

1,817

2,515

3,537

2,428

2,764 2,691

2,434

1,394

2,1722,013

1,725

2,195 2,120

1,440

1,801

2,0441,931

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Markets Issuance ($B)





69

112

154

206 207

252 255

320

345

300

321

243

280

223

178193

207 209

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency MBS Markets ADV ($B)

4.4 4.5

4.1

3.7

3.12.9

2.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2011 2012 2013 2014 2015 2016 2017

Non-Agency MBS Markets ADV ($B)





Agency, 86%

Non-Agency, 14%

MBS Outstanding $9.3T

0

1

2

3

4

5

6

7

8

9

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding by Category ($T)

Agency Non-Agency

4,4604,957

5,372 5,481 5,546 5,6575,906 6,008

6,2176,530

6,924

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding, Agency MBS ($B)3.6

3.2

2.7

2.4

2.1

1.91.7 1.6

1.51.4 1.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding, Non-Agency ($T)





MBS, 86%

CMO, 14%

Agency MBS Outstanding

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency MBS Outstanding by Category ($B)

MBS CMO

4,4604,957

5,372 5,481 5,546 5,6575,906 6,008

6,2176,530

6,924

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding, Agency MBS ($B)

1,341 1,3231,264

1,3531,401

1,304

1,1341,210

1,1501,109 1,081

0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding, Agency CMO ($B)





RMBS, 61%

CMBS, 39%

Agency MBS Outstanding

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Non Agency MBS Outstanding by Category ($B)

CMBS RMBS

2,714

2,357

1,923

1,677

1,437

1,2391,076

994 925846 783

0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding, CMBS ($B)871

831793

747690

638 626 629603

532508

0

100

200

300

400

500

600

700

800

900

1,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Outstanding, RMBS ($B)





Agency, 89%

Non-Agency, 11%

MBS Issuance by Category

0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance by Category ($B)

Agency Non-Agency

1,4051,324

2,089

1,921

1,653

2,1191,982

1,265

1,601

1,880

1,711

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance, Agency ($B)

1,029

70 83 91 72 76138

174 199164

220

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance, Non-Agency ($B)





MBS, 82%

CMO, 18%

Agency MBS Issuance

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency MBS Issuance by Category ($B)

MBS CMO

1,148 1,174

1,777

1,428

1,242

1,759

1,624

989

1,331

1,560

1,402

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance, MBS ($B)

257

150

311

493

411

360 358

276 271

321 308

0

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance, CMO ($B)





RMBS, 56%

CMBS, 44%

Non-Agency MBS Issuance

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Non-Agency MBS Issuance by Category ($B)

CMBS RMBS

241

17 1125

3448

88101 102

78

97

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance, CMBS ($B)

788

53 72 6737 28

5074

97 86123

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MBS Issuance, RMBS ($B)


Market Breakout: Corporates




Corporate bonds (corporates) are debt securities issued by public and private (you do not have to “go public” to

issue debt, unlike in equities) corporations. They are issued to raise money to fund investments or expansion plans.

Corporates are considered riskier than UST, and receive ratings by credit ratings agencies to determine

creditworthiness, i.e. probability of repayment of debt in a timely manner. This is a function of future earnings, or

company assets may be used as collateral for the bonds.


• Product Breakout – Common types of corporates include, some of which may be subsectors of others:

o Publicly Traded - Registered bonds traded in the markets.

o 144A Traded - A mechanism for the sale of privately placed bonds, forgoing SEC registration if

certain conditions are met (two-year holding period, minimum level of public-accessible information).

o High-Yield - Bonds rated by the credit rating agencies below BBB, indicating a higher risk of default.

o Investment Grade - Bonds rated by the credit rating agencies as BBB or higher, indicating a

relatively low risk of default.

o Fixed-Rate – These pay the same amount of interest for its entire term, i.e. a guaranteed interest

rate throughout maturity.

o Floating Rate – These pay a variable interest rate, tied to a benchmark rate, such as the U.S.

Treasury bill rate, Fed Funds rate, London Interbank Offered Rate (LIBOR) or the prime rate.

o Callable – These resemble standard bonds, but with an embedded call option sold to the issuer,

which introduces uncertainty into the security. On the call date, the issuer may decide to recall

(retire) the bonds. Otherwise, the bond reties at the originally specified maturity date.

o Non-Callable – These cannot be redeemed early by the issuer except with the payment of a penalty.

o Convertible – These can be converted into a predetermined amount of the underlying company's

equity at certain times during the bond's life, usually at the bondholder’s discretion.

• Outstanding – Corporates grew at a 5.0% CAGR since 2008, to $8.8 trillion. As companies rushed to

secure low interest rates before the Fed began raising rates, corporates outstanding is up 18.5% over the

last five years.

• Issuance – Corporates issuance grew at an 8.8% CAGR since 2008, to $1.7 trillion. Investment grade

corporates grew at a 7.4% CAGR versus 21.1% for high yield, as investors searched for yield. (Remaining

CAGRs include: callable fixed rate 10.8%, callable floating rate 9.8%; non-callable fixed rate 7.5%, non-

callable floating rate 1.3%; convertibles -4.6%.)

• ADV – Corporates ADV grew at an 8.0% CAGR since 2008, to $30.9 billion. CAGRs include: investment

grade 7.6%, high yield 8.6%; publicly traded 6.9%, 144A 13.9%.




Chartbook


3.43.8

4.04.3

4.5 4.64.8

5.2 5.4

5.9

6.5 6.67.0

7.47.8

8.18.5

8.8

0

1

2

3

4

5

6

7

8

9

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporate Markets Outstanding ($T)

575

771

636

773 776 748

1,0581,137

711

941

1,055 1,021

1,365 1,3771,437

1,4891,528

1,647

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporate Markets Issuance ($B)





17.8 18.017.3

16.6 16.9 16.4

14.3

19.9 20.5 20.6

22.6

24.7

26.727.9

29.630.7

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporate Markets ADV ($B)

Investment Grade, 83%

High Yield, 17%

Corporates Issuance $1.6B

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance by Category ($B)

Investment Grade High-Yield





Note: Call = Callable; Float = Floating

669

795 792 797

1,032 1,0421,125

1,2281,288

1,363

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, Investment Grade ($B)

42

147

262

224

333 334311

262240

284

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, High-Yield ($B)

Call - Fixed, 60%

Non-Call - Fixed, 24%

Call - Float, 9%

Non-Call - Float, 8%

Corporates Issuance

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance by Category ($B)

Call - Fixed Non-Call - Fixed Call - Float Non-Call - Float





353

616577 585

884

801865

997 1,017983

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, Callable - Fixed ($B)

58

610 8

13

24 2231 32

148

0

20

40

60

80

100

120

140

160

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, Callable - Floating ($B)

189

272

406

311

415 419 423

380395 390

0

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, Non-Callable - Fixed ($B)

111

48

61

117

53

133127

82 83

126

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, Non-Callable - Floating ($B)





43

34

29

21 20

3638

2122

27

0

5

10

15

20

25

30

35

40

45

50

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates Issuance, Convertible ($B)

High-Yield63%

Investment Grade37%

Corporates ADV by Category

0

1

2

3

4

5

6

7

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates ADV by Category ($B)

High-Yield Investment Grade





5.1

6.6

7.5 7.5

8.7

9.8

11.3 11.5 11.5 11.8

0

2

4

6

8

10

12

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates ADV, High Yield ($B)

12

.7

11

.9

11

.2

10

.2

10

.4

10

.2

9.2

13

.3

12

.9

13

.2

13

.9 14

.9

15

.4 16

.4

18

.5

19

.2

0

2

4

6

8

10

12

14

16

18

20

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Corporates ADV, Investment Grade ($B)

Publicly Traded79%

144A21%

Corporates ADV by Category

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates ADV by Category ($B)

Publicly Traded 144A





12.6

17.4 17.2 16.918.2

19.7

21.322.1

24.1 24.5

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates ADV, Publicly Traded ($B)

1.7

2.5

3.3

3.8

4.5

5.05.4

5.9 5.9

6.4

0

1

2

3

4

5

6

7

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporates ADV, 144A ($B)

9.510.1

9.2

8.3

7.3

8.98.3

8.07.4

8.6

10.2

13.6 13.7

11.8

12.9 12.9

13.6 13.7

14.7

17.0

15.815.3

6

8

10

12

14

16

18

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Corporates Average Maturity (# Years)


Market Breakout: Munis




Municipal bonds (munis) are debt securities issued by state or local governments or other government agencies and

public entities, like public utilities or school districts. The money raised funds public projects, predominantly

infrastructure projects such as: roads, bridges, transit systems, water treatment centers, schools, airports or

hospitals. Efficient muni markets enable states and municipalities to borrow at low rates and finance capital

expenditures over a longer period commensurate with useful life.

Munis are categorized based on the source of repayment, interest and principal.


• Product Breakout – Common types of munis include:

o General Obligation Bond (GO) – These are backed by dedicated property taxes or general funds of

the municipality, not by revenue from a specific project.

o Revenue Bond – These are backed by revenue from a specific project.

o Negotiated - An underwriter sells the bonds to its clients, after determining the bond price by

gathering indications of interest during a presale.

o Competitive - Bonds are advertised for sale, and any market participant may bid, with the bonds

going to the bidder offering the lowest interest cost.

o Private - A broker-dealer sells the entire muni bond placement to one of its clients.

o Refunding - Retiring or redeeming an outstanding bond issue at maturity by using the proceeds from

a new debt issue, typically at a lower interest rate.

o New Capital - First issue of a bond, not a refunding.

o Tax-Exempt Bond – The interest earned by investors is generally free from federal income tax and

often state and local income tax.

o Taxable Bond – The interest earned by investors is subject to taxation.

• Outstanding – Munis outstanding is essentially flat since 2008 (0.5% CAGR), at $3.9 trillion.

• Issuance – Munis issuance grew at a 1.4% CAGR since 2008, to $448 billion. CAGRs include: GO 3.9%,

revenue -1.1%; competitive 6.3%, negotiated -0.7%; private placement 28.8%; new capital -0.2%, refunding

3.0%; callable 0.8%, non-callable 5.5%.




Chartbook


1.51.6

1.81.9

2.9

3.13.3

3.53.7

3.83.9 3.9 3.9 3.8 3.8 3.8 3.8 3.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Markets Outstanding ($T)

198

286

356380

358

407386

429

389410

433

295

382

335 339

405

446 448

0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Markets Issuance ($B)





8.8 8.8

10.7

12.6

14.8

16.9

23.1

25.1

19.4

12.513.3

11.3 11.3 11.29.9

8.6

10.6 10.8

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Markets ADV ($B)

Revenue, 55%

GO, 36%

Private, 9%

Muni Issuance $448B

0

50

100

150

200

250

300

350

400

450

500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance by Category ($B)

Revenue GO Private





Negotiated, 69%

Competitive, 22%

Private, 9%

Muni Issuance by Category

0

50

100

150

200

250

300

350

400

450

500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Negotiated Competitive Private

276

252

283

180

235

188 182

224

248 248

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Revenue ($B)

110

155147

105

135

125133

154

175

161

0

20

40

60

80

100

120

140

160

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, GO ($B)





3 3 3

10

12

2224

27

22

40

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Private Placement ($B)

333349 357

226

296

244 243

290

325310

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Negotiated ($B)

5358

73

60

7469 72

87

99 98

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Competitive ($B)





Callable, 85%

Non-Callable, 15%


0

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Callable Non-Callable

349 353364

248

332

281 285

348

392379

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Callable ($B)

40

56

69

4750

54 5457

54

69

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Non-Callable ($B)





Refunding, 55%

New Capital, 45%


0

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Refunding New Capital

182

149 154145

234

174194

250

272

245

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, Refunding ($B)

207

261279

150 149161

145155

174

203

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Muni Issuance, New Capital ($B)





17%

14%

12%

10%

8% 8%

6%

25%

0%

5%

10%

15%

20%

25%

30%

Ed

uca

tio

n

Hea

lth

Utilit

y

Va

rio

us

Tra

nspo

rta

tio

n

Ta

x-R

eve

nue

Ind

ustr

ial

Oth

er

Muni Par Amount ADV by Category

41%

25%

15%14%

5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Individuals MFs Banks Insurance Cos Other

Institutional Holders of Munis





19.9

19.4

19.8

19.2

19.719.4

19 19.1 19

19.9

21.1 21.1

19.5

16.7

16.2

15.5 15.6

16.216

16.4

16.9

17.5

15

16

17

18

19

20

21

22

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Muni Average Final Maturity at Issuance (# Years)


Market Breakout: Agency




Agency securities are issued by quasi-governmental agencies to fund operations. Unlike UST or munis, these

securities are not always fully guaranteed by the U.S. or a municipal government. As such, they can hold credit and

default risk.


• Product Breakout – Common types of agency debt include:

o Federal Government Agency Bonds – These are backed by the full faith and credit of the U.S.

government and include bonds issued by the Small Business Administration (SBA), etc.

o Government-Sponsored Enterprise Bonds (GSE) – These are not backed by the same guarantee as

federal government agencies and are issued by the Federal National Mortgage Association (Fannie

Mae or Fannie), Federal Home Loan Mortgage (Freddie Mac or Freddie), Federal Farm Credit

Banks Funding Corporation (Farm Credit) or the Federal Home Loan Bank (FHLB), Federal

Agricultural Mortgage Corporation (Farmer Mac). Tennessee Valley Authority (TVA) is unique. A

wholly-owned agency of the U.S. government, the TVA is a self-supporting entity whose debt is not

guaranteed by the government, but supported strictly by TVA revenues.

• Outstanding – Agency outstanding declined at a 4.9% CAGR since 2008, to $1.9 trillion. CAGRs include:

Fannie Mae -10.9%, Freddie Mac -9.6%, FHLB -1.9%, Farmer Mac +12.8%, Farm Credit 4.2% and TVA

1.1%.




Chartbook


1.9

2.2

2.4

2.62.7

2.6 2.6

2.9

3.2

2.7

2.5

2.3

2.1 2.1 2.0 2.0 2.0 1.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Markets Outstanding ($T)

447

941

1,042

1,219

878

635692

831

1,121

1,213

1,346

932

823

584530

634

915

730

0

200

400

600

800

1,000

1,200

1,400

1,600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Markets Issuance ($B)





72.8

90.2

81.8 81.778.8 78.8

74.4

83.0

104.5

77.7

11.2 9.6 9.76.6 5.3 4.5 5.4 4.1

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Markets ADV ($B)

FHLB, 53%

Freddie, 16%

Fannie, 14%

Farm Credit, 14%

TVA, 1%Farmer Mac,

1%

Agency Outstanding by Category

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding by Category ($B)

FHLB Freddie Fannie Farm Credit TVA Farmer Mac





595 561 555

578 550

527

449

388 346 337

315

269

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, FHLB ($B)

77

3

76

0 8

81

82

4

83

9

75

7

63

4

60

4

49

4

43

2

36

5

31

7

0

100

200

300

400

500

600

700

800

900

1,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, Freddie ($B)

774 796

883

786 794 742

622

534

464

389 329

277

0

100

200

300

400

500

600

700

800

900

1,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, Fannie ($B)

744 739

870

805

728 674

552 511

454 418

357 317

0

100

200

300

400

500

600

700

800

900

1,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, Farm Credit ($B)





27

4

51

3 6

01

36

3

36

3

36

0

39

8 4

83

56

0

70

5

63

8

63

2

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, TVA ($B)

134

154

176 176 188 184

197 208

225 243

258 265

0

50

100

150

200

250

300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, Farmer Mac ($B)

Long Term73%

< 1 Year27%

Agency Outstanding by Category

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding by Category ($B)

Long Term < 1 Year





2,114 2,074 2,085 2,074 1,971

1,810

1,636 1,525

1,393 1,278

1,420 1,406

0

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, Long Term ($B)

518

832

1,124

652

567 517

460 533

636

718

552 529

0

200

400

600

800

1,000

1,200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Agency Outstanding, < 1 Year ($B)

FHLB, 37%

Freddie, 22%

Fannie, 14%

Other, 26%

Agency ADV





0

1

2

3

4

5

6

7

8

Ja

n-1

5

Fe

b-1

5

Ma

r-15

Ap

r-15

Ma

y-1

5

Ju

n-1

5

Ju

l-1

5

Au

g-1

5

Se

p-1

5

Oct-

15

Nov-1

5

Dec-1

5

Ja

n-1

6

Fe

b-1

6

Ma

r-16

Ap

r-16

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Au

g-1

6

Se

p-1

6

Oct-

16

Nov-1

6

Dec-1

6

Ja

n-1

7

Fe

b-1

7

Ma

r-17

Ap

r-17

Ma

y-1

7

Ju

n-1

7

Ju

l-1

7

Au

g-1

7

Se

p-1

7

Oct-

17

Nov-1

7

Dec-1

7

Agency ADV ($B)

FHLB Freddie Fannie Other

4.9

3.7 3.6

7.0

5.3

3.4

4.1

0

1

2

3

4

5

6

7

8

Ja

n-1

5

Fe

b-1

5

Ma

r-15

Ap

r-15

Ma

y-1

5

Ju

n-1

5

Ju

l-1

5

Au

g-1

5

Se

p-1

5

Oct-

15

Nov-1

5

Dec-1

5

Ja

n-1

6

Fe

b-1

6

Ma

r-16

Ap

r-16

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Au

g-1

6

Se

p-1

6

Oct-

16

Nov-1

6

Dec-1

6

Ja

n-1

7

Fe

b-1

7

Ma

r-17

Ap

r-17

Ma

y-1

7

Ju

n-1

7

Ju

l-1

7

Au

g-1

7

Se

p-1

7

Oct-

17

Nov-1

7

Dec-1

7

Agency ADV ($B)

Total Trend Line


Market Breakout: ABS




Securitization is a financing technique of pooling similar types of debt obligations and then selling the related cash

flows of the underlying assets to investors. Similar to MBS, an asset-backed security (ABS) is a financial security

collateralized by a pool of assets such as auto loans, student loans, home equity loans, aircraft leases, other loans

and leases, credit card debt (cards), royalties or account receivables.

Typically, the underlying assets of an ABS are illiquid. Pooling these assets creates a more liquid investment

vehicle, with a valuation based on the cash flows of the underlying and the structure of the transaction.


• Product Breakout – ABS markets are concentrated in collateralized debt obligations (CDOs), 48% of total

outstanding, followed by: autos 14%, student loans 12%, cards 9%, equipment 4% and other 13%.

• Outstanding – ABS outstanding has declined at a 2.3% CAGR since 2008, to $1.4 trillion. CAGRs include:

CDOs -3.2%, autos 3.8%, student loans -2.9%, cards -8.6%, equipment 2.4% and other 5.2%.

• Issuance – ABS issuance has increased at an 8.8% CAGR since 2008, to $498 billion. CAGRs include:

CDOs 11.5%, autos 11.0%, student loans -5.5%, cards -2.5%, equipment 24.6% and other 19.8%.




Chartbook


0.70.8

0.91.0

1.1

1.3

1.7

2.0

1.81.7

1.5

1.41.3 1.3

1.3 1.4 1.41.4

0.0

0.5

1.0

1.5

2.0

2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Markets Outstanding ($T)

240261 269

288331

474

658

828

215178

126151

259304

381 388

322

498

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Markets Issuance ($B)





1.51.5

1.3

1.51.4

1.31.4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2011 2012 2013 2014 2015 2016 2017

ABS Markets ADV ($B)

CDO, 48%

Autos, 14%

Student Loans, 12%

Cards, 9%

Equipment, 4%

Other, 13%

ABS Outstanding by Category

0

400

800

1,200

1,600

2,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding by Category ($B)

CDO Autos Student Loans Cards Equipment Other





1,053975

891

788

699622 597

632 660 670 702

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, CDO ($B)

181

140127

115 115

141

160

178189 194

203

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Autos ($B)

230238 241 242 236 235 230

218202

189177

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Student Loans ($B)

325 316301

217

164

128 124136 129 131 129

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Cards ($B)





53

44

4036 37

42

48

53 52 51

56

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Equipment ($B)

114 109 108101 99

105117

125

143154

181

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Other ($B)

CDO, 49%

Autos, 20%

Cards, 9%

Equipment, 5%

Student Loans, 3% Other,

14%

ABS Issuance by Category

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Issuance by Category ($B)

CDO Autos Cards Equipment Student Loans Other





1,053975

891

788

699622 597

632 660 670 702

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, CDO ($B)

181

140127

115 115

141

160

178189 194

203

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Autos ($B)

325 316301

217

164

128 124136 129 131 129

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Cards ($B)

53

44

4036 37

42

48

53 52 51

56

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Equipment ($B)





230238 241 242 236 235 230

218202

189177

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Student Loans ($B)

114 109 108101 99

105117

125

143154

181

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ABS Outstanding, Other ($B)


Market Breakout: Money Markets




The money markets involve highly liquid, short maturity (typically overnight to less than one year) financial

instruments, used by investors to borrow and lend in the short term. Common money market instruments include:

negotiable certificates of deposit (CDs), bankers acceptances and commercial paper (CP), among others.

Transactions in the money market are wholesale, taking place only between institutional investors (no individual, or

retail, investors) and for large denominations.

Retail investors access money markets through smaller investment amounts in money market funds (MMF), a type

of mutual fund required by the SEC to invest in low-risk securities. There are several types of MMFs, including ones

investing primarily in government securities, tax-exempt municipal securities or corporate debt (called prime funds).

MMFs are not insured, yet are considered relatively safe and stable investment vehicles, given the low-risk nature of

the underlying financial assets. MMFs seek to maintain a stable net asset value (NAV), the price at which investors

can redeem their shares, at $1.00 per share. While rare, NAV may fall below $1.00 per share causing investor

losses.

During times of market stress, the underlying financial assets may decline in price or become difficult to price.

Investors, then, may seek to redeem their shares at the first sign of risk to their investments. This transforms a

typically stable investment into one subject to shareholder runs, as seen during the financial crisis.

In response to this, in 2014 the SEC adopted structural changes to the regulations of MMFs. The new rules require

institutional prime MMFs to float NAV2, allowing the daily share price to fluctuate along with changes in the market

value of fund assets, while government and retail MMFs continue to seek to maintain a stable NAV3. A muni MMF

would be required to transact at a floating NAV, unless meeting the definition of a retail MMF, in which case it must

seek to maintain a stable NAV.

The rules also provided MMF boards (not applicable to government MMFs, unless they choose to opt in) new tools

to address runs during times of market stress, including:

2 Stable NAV MMFs “penny round” share prices to the nearest 1% (or nearest penny for a fund with a $1.00 share price). To float NAV, MMFs must “basis point round” share prices to the nearest 1/100th of 1% (four decimal places for funds with a $1.0000 share price). 3 Government MMF = 99.5% (formerly 80%) or more of total assets in cash, government securities or repos collateralized solely by government securities or cash. Retail MMF = limit beneficial ownership to “natural persons” (individual investors).

https://www.sec.gov/news/press-release/2014-143



• Liquidity Fees – If weekly liquid assets4 drop below 30% of total assets, the MMF can impose a liquidity fee

of up to 2% on redemptions. If weekly liquid assets drop below 10% of total assets, the MMF is required to

impose a liquidity fee of 1% on all redemptions (unless the MMF determines the fee is not in the best

interest of the fund or that a lower or higher, up to 2%, fee is a better option).

• Redemption Gates – If weekly liquid assets drop below 30% of total assets, the MMF can temporarily

suspend redemptions (gate) for up to 10 business days (can only be performed one time in a 90-day period).

• Prompt Public Disclosure – MMFs must “promptly and publicly” disclose (a) when weekly liquid assets

drop below 10% of total assets or (b) the implementation and removal of liquidity fees or gates.

With these rule changes, the SEC also imposed stronger diversification requirements – aggregation of affiliates for

the 5% of total assets per issuer test; change the 25% diversification limit to 10% for guarantees or demand features

from a single institution; and treat ABS sponsors as guarantors under the 10% limit test (unless not relying on the

sponsor’s financial strength). The rules also sought to improve transparency of MMF risks and operations by

enhancing disclosure and reporting requirements, as well as improving stress testing requirements.


• Product Breakout – Common money markets include:

o Commercial Paper (CP) – A short-term, unsecured debt instrument issued by a corporation, typically

to finance short-term liabilities (accounts receivables, inventories, etc.). Maturities are usually under

270 days. CP is most often issued at a discount from face value and reflects prevailing market

interest rates.

o Certificate of Deposit (CD) – A savings certificate with a fixed maturity date and interest rate, which

restricts access to the funds until the maturity date. CDs are generally issued by commercial banks,

in essentially any denomination, and are insured by the FDIC up to $250,000 per individual.

o Bankers Acceptances – A promised future payment, or time draft, guaranteed by and drawn on a

deposit at the bank. The amount, date and holder of the draft are specified at issuance, at which

time the draft becomes a liability of the bank. The holder of the draft can sell the bankers acceptance

for cash to a buyer who is willing to wait until the maturity date for the funds in the deposit.

• Outstanding – Money markets outstanding declined at a 4.9% CAGR since 2008, to $966 billion.


4 Weekly liquid assets = cash, UST, other government securities with maturities of 60 days or less and securities converting to cash within one week.



Chartbook


1.6

1.51.4

1.31.4

1.6

2.0

1.8

1.6

1.11.1

1.0 1.0 1.0 0.9 0.90.9

1.0

0.0

0.5

1.0

1.5

2.0

2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Money Markets Outstanding ($T)

Financial , 49%

Non-Financial ,

26%

ABCP , 25%

CP Outstanding by Category

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CP Outstanding by Category ($B)

ABCP Financial Non-Financial





795

714

593 562

472 478 492 472 467

406

475

-

100

200

300

400

500

600

700

800

900

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CP Outstanding, Financial ($B)

153

181

93

114

146

171

196

227 219 224

252

-

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CP Outstanding, Non-Financial ($B)

840

704

452

382 351

304 264

231 251 246 240

-

100

200

300

400

500

600

700

800

900

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CP Outstanding, ABCP ($B)


Market Breakout: Repo




A repurchase agreement (repo) is a financial transaction in which one party sells an asset to another party with a

promise to repurchase the asset at a pre-specified later date (a reverse repo is the same transaction seen from the

perspective of the security buyer). Repos can be overnight (duration one day) or term (duration up to one year,

albeit some are up to two years and the majority are three months or less). The repo market enables market

participants to provide collateralized loans to one another, and financial institutions predominantly use repos to

manage short-term fluctuations in cash holdings, rather than general balance sheet funding.

In general, repos aid secondary market liquidity for the cash markets (for example, UST), allowing dealers to act as

market makers in a very efficient manner. Market makers stand ready to buy and sell securities, providing liquidity to

markets. These firms must take the other side of trades when there are short-term buy and sell imbalances in

customer orders. Healthy repo markets provide them the necessary cash and access to securities to perform these

actions and keep secondary cash markets running effectively.

Prior to the financial crisis, some financial institutions used repos to fund leveraged position-taking in securities. As

asset prices declined during the crisis, repo lenders increased the amount of collateral required, limiting the level of

repo activity for some investors holding leveraged portfolios. This created a funding shortfall and forced investors to

decrease leverage by selling assets, leading to even lower asset valuations. This fed back into additional asset

sales, and the circle went round and round. Repos backed by government securities also faced stress. Flight to

safety tendencies drove increased demand for these standalone assets, leading to shortages as available collateral

in the repo market.

In light of this, regulators have sought to increase the resiliency of the repo markets, ensuring they become a more

stable source of funding during periods of market stress. While comprehensive data for all segments of this market

are not available, the Federal Reserve Bank of New York (New York Fed) provides data for certain segments of and

specific firms operating in this market. The repo market can be split into two main segments:

• Bilateral Repo – The bilateral repo market has investors and collateral providers directly exchange money

and securities, absent a clearing bank. Bilateral repo transactions can either allow for general collateral or

impose restrictions on eligible securities for collateral. Bilateral repo is preferred when market participants

want to interact directly with each other or if specific collateral is requested.

• Tri-Party Repo – The tri-party repo market is named as such given the role played by clearing banks in

facilitating settlement. The clearing banks (Bank of New York Mellon, JPMorgan) act as an intermediary,

handling the administrative details between the two parties in the repo transaction. Tri-party repo is used to

finance general collateral, with investors accepting any security within a broad class of securities. According

to the New York Fed, market participants view tri-party repo as more cost efficient.

There is also the general collateral finance (GCF) repo market, which is offered by the Fixed Income Clearing

Corporation (FICC), a central clearing counterparty. GCF repo is predominantly used by securities dealers, who



negotiate the trade on an anonymous basis and then submit it to FICC. FICC then interposes itself as the legal

counterparty to both sides of the repo transaction.

Securities dealers are at the heart of the repo market, operating in all repo market segments. The following shows

the interaction of market participants in both repo market segments described above.

Source: Federal Reserve Bank of New York

Securities

Cash Investors:

-Hedge Funds

-Asset Managers

-Others

Securities

Dealers

-Prime Services Clients

-Hedge Funds

-Others

$ $

Securities

Bilateral Repo

Securities

Cash Investors:

-Money Market Mutual Funds

-Securities Lenders

-Others

Securities

Dealers

Clearing

Banks

$

Tri-Party Repo



Chartbook

Bilateral Repo Markets


Overnight, 68%

Term, 32%

Avg Daily Outstanding - Repo

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average Daily Outstanding ($B) - Repo

Overnight Term

Term, 56%Overnight, 44%

Avg Daily Out - Reverse Repo

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average Daily Outstanding ($B) - Reverse Repo

Term Overnight





2,633

1,823 1,767 1,835 1,8101,696

1,4751,402 1,453 1,510

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Outstanding ($B) - Repo, Overnight 1,278

746

885 910 922958 931

805747 725

0

200

400

600

800

1,000

1,200

1,400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Outstanding ($B) - Repo, Term

1,487

1,066

1,180

1,284 1,295

1,1991,108

1,017 1,051984

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Outstanding ($B) - Reverse Repo, Term1,103

765

891 905859

799729 739 755

789

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Outstanding ($B) - Reverse Repo, Overnight




GCF Repo Markets


MBS, 68%

UST, 32%

Avg Daily Outstanding - Repo

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016 2017

GCF Repo Total Par Amount ($T)

MBS UST Agency

33.631.1

29.2

21.5

18.5

24.4 24.2

20.9

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015 2016 2017

Total Par Amount ($T) - MBS

40.137.4

35.937.6

27.9 28.3

20.7

9.9

0

5

10

15

20

25

30

35

40

45

2010 2011 2012 2013 2014 2015 2016 2017

Total Par Amount ($T) - UST





9.59.0

7.7

5.3

4.0

2.5

0

1

2

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015

Total Par Amount ($T) - MBS

134.3

122.5117.4

86.0

74.1

97.6 96.8

83.8

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015 2016 2017

Daily Par Amount ($B) - MBS

160.4

148.1 144.1150.3

111.7 113.4

82.7

39.6

0

20

40

60

80

100

120

140

160

180

2010 2011 2012 2013 2014 2015 2016 2017

Daily Par Amount ($B) - UST

38.035.5

31.1

21.1

15.9

10.0

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015

Daily Par Amount ($B) - Agency


Appendix: Current Primary Dealer List


Appendix: Current Primary Dealer List

The following is the current list of primary dealers, as per the Federal Reserve Bank of New York:

• Bank of Nova Scotia, New York Agency

• BMO Capital Markets Corp.

• BNP Paribas Securities Corp.

• Barclays Capital Inc.

• Cantor Fitzgerald & Co.

• Citigroup Global Markets Inc.

• Credit Suisse AG, New York Branch

• Daiwa Capital Markets America Inc.

• Deutsche Bank Securities Inc.

• Goldman Sachs & Co. LLC

• HSBC Securities (USA) Inc.

• Jefferies LLC

• J.P. Morgan Securities LLC

• Merrill Lynch, Pierce, Fenner & Smith Incorporated

• Mizuho Securities USA LLC

• Morgan Stanley & Co. LLC

• NatWest Markets Securities Inc.

• Nomura Securities International, Inc.

• RBC Capital Markets, LLC

• Société Générale, New York Branch

• TD Securities (USA) LLC

• UBS Securities LLC.

• Wells Fargo Securities, LLC

https://www.newyorkfed.org/markets/primarydealers

Appendix: Terms to Know



ADV Average Daily Trading Volume

Algo Algorithm (algorithmic trading)

AUM Assets Under Management

BPS Basis Points

CAGR Compound Annual Growth Rate

CUSIP Committee on Uniform Securities Identification Procedures; a nine character security identifier

ETF Exchange-Traded Fund

FICC Fixed Income, Currencies and Commodities

FI Fixed Income

OTC Over-the-Counter

TRS Total Return Swap

D2C Dealer-to-Client

D2D Dealer-to-Dealer

CLOB Central Limit Order Book

ECN Electronic Communications Network

ETP Electronic Trading Platforms

IDB Inter-Dealer Broker

OTC Over-the-Counter

FAMC Farmer Mac/Federal Agricultural Mortgage Corporation

FCS Farm Credit System

FHLB Federal Home Loan Banks

FHLMC Freddie Mac/Federal Home Loan Mortgage Corporation

FNMA Fannie Mae/Federal National Mortgage Association

GNMA Ginnie Mae/Government National Mortgage Association

TVA Tennessee Valley Authority

CD Certificate of Deposit

CDO Collateralized Debt Obligation

CP Commercial Paper

ABCP Asset-Backed Commercial Paper

MMF Money Market Mutual Funds



Fed Federal Reserve System

FIMSAC Fixed Income Market Structure Advisory Committee

SEC Securities and Exchange Commission

UST U.S. Treasury Securities

Mortgage Mortgage-Related Securities (GNMA, FNMA & FHLMC MBS & CMOs; private-label MBS & CMOs)

Corporates Corporate Bonds

Munis Municipal Securities

Agency Federal Agency Securities (FNMA, FHLMC, FAMC, FHLB, FCS, TVA, etc.)

ABS Asset-Backed Securities (auto, credit card, home equity, manufacturing, student loans, etc.; CDOs)

MM Money Markets (CP, bankers acceptances, large time deposits)

FRN Floating Rate Note

T-Bill U.S. Treasury Bill

T-Note U.S. Treasury Note

T-Bond U.S. Treasury Bond

TIPS Treasury Inflation Protected Securities

ABS Asset-Backed Security

CMO Collateralized Mortgage Obligation

MBS Mortgage-Backed Security

CMBS Commercial MBS

RMBS Residential MBS

HY High Yield Bond

IG Investment Grade Bond

GO General Obligation Bond

Revenue Revenue Bond

Appendix: Credit Ratings Scale


Appendix: Credit Ratings Scale

Long-Term Short-Term Long-Term Short-Term Long-Term Short-Term

Aaa AAA AAA Prime

Aa1 AA+ AA+

Aa2 AA AA

Aa3 AA- AA-

A1 A+ A+

A2 A A

A3 A- A-

Baa1 BBB+ BBB+

Baa2 BBB BBB

Baa3 BBB- BBB-

Ba1 BB+ BB+

Ba2 BB BB

Ba3 BB- BB-

B1 B+ B+

B2 B B

B3 B- B-

Caa1 CCC+ Substantial Risks

Caa2 CCC Extremely Speculative

Caa3 CCC-

CC

C

C DDD

DD

D

Ca

D / //

Default Imminent (low

probability of recovery)

In Default

Not Prime

B B

Speculative

High-Yield

Bonds

Highly Speculative

C CCC C

A-1Upper Medium Grade

P-2 A-2 A-2

Lower Medium GradeP-3 A-3 A-3

Moody's S&P Fitch

Rating Description

P-1

A-1+ A-1+

Investment

Grade Bonds

High Grade

A-1

Appendix: Sources and Notes to Data



Source: SIFMA

The data and statistics sourced to SIFMA throughout this Primer are available at www.sifma.org/research. Explanatory notes follow

below:

US Bond Market Trading Volume

• Daily Trading Figures – Daily trading figures do not include all trades reported for the asset class due to time, trade type, or

trade size cutoffs. Monthly and certain annual averages are derived from daily trading and therefore will often be an

undercount to actual figures.

• Annual Trading Figures – Annual trading figures are sourced from agency annual reports on a 2-year lag.

• Data Sources

o Municipal = MSRB

o Treasury – US Primary Dealer Trading Volumes (NY Fed)

o Agency MBS – Until May 2011, from US primary dealer trading volumes (NY Fed); beginning May 2011, from FINRA

Trace

o Non-Agency MBS – FINRA Trace

o ABS = FINRA Trace

o Corporate = FINRA Trace

o Federal Agency Securities – Until March 2010, from US primary dealer trading volumes (NY Fed); beginning March

2010, from FINRA Trace

• Notes

o Municipal – Annual figures are sourced from daily averages not from MSRB's yearbook.

o Treasury – US Primary Dealer Trading Volumes (NY Fed)

o Agency MBS – Full year 2011 and year to date 2011 average figures are only sourced from FINRA daily volumes.

Annual figures are also sourced from daily figures.

o Non-Agency MBS – Non-Agency MBS trading figures will include CMBS figures; daily figures include 144A trades but

do not include certain subcategories in which there are <5 trades made. New issue transactions are sometimes

included.

o ABS – ABS figures will not include CMBS figures, but also include CDO and Other trading volumes; daily figures

include 144A trades but do not include certain subcategories in which there are <5 trades made. New issue

transactions are sometimes included.

o Corporate – Annual figures are sourced from FINRA's yearbook when available. Monthly figures are sourced from

daily reporting and are subject to 5:15pm cutoff which causes monthly volumes to be understated. For more detailed

data, please visit Corporate Bond Trading Volume sheet on the website.

US Bond Market

• Changes, December 2016 – Large time deposits are no longer reported for the money market category.

• Changes, September 2016 – Risk transfer and single family rentals have been moved from ABS to MBS.

• Changes, Jun 2016 – ABS issuance now includes CDOs marketed in the US.

• Changes, Sep 2014 – Revisions in Flow of Funds methodology for non-financial corporate bonds have reduced outstanding

sizes and are subsequently reflected in the table.

• Changes, Nov 2013 – Home equity and manufactured housing issuance has been moved from ABS to MBS. Overall bond

totals have not changed.

• Issuance

o Treasury – Long-term only, interest bearing marketable coupon public debt. Includes floating rate notes.


http://www.sifma.org/research



o Mortgage-Related – Includes GNMA, FNMA, and FHLMC mortgage-backed securities and CMOs and private-label

MBS/CMOs.

o Corporate Debt – Includes all non-convertible debt, MTNs and Yankee bonds, but excludes CDs and federal agency

debt.

o Federal Agency – Beginning with 2004, Sallie Mae has been excluded due to privatization. Data for Federal Agency

issuance is posted with a month lag.

• Outstanding

o Treasury – Interest bearing marketable coupon public debt.

o Asset-Backed – Includes auto, credit card, home equity, manufacturing, student loans and other; USD-denominated

CDOs are also included.

o Money Markets – Includes commercial paper, bankers acceptances, and large time deposits.

o Mortgage-Related – Includes GNMA, FNMA, and FHLMC mortgage-backed securities and CMOs and private-label

MBS/CMOs.

o Corporate Debt – Includes all non-convertible debt, MTNs and Yankee bonds, but excludes CDs and federal agency

debt.

o Federal Agency – Contains agency debt of Fannie Mae, Freddie Mac, Farmer Mac, FHLB, the Farm Credit System,

and federal budget agencies (e.g., TVA). Beginning with 2004, Sallie Mae has been excluded due to privatization.

Beginning in 2010 Q1, the Federal Reserve Flow of Funds is no longer our source of agency debt going forward due

to FAS 166/167 changes.

o Municipal – Due to the change in underlying sourcing from the Federal Reserve, municipal securities outstanding has

been restated from 2004 onward and revised upward by about $840 billion.

• Sources: Bloomberg, Dealogic, Thomson Reuters Eikon, Thomson Reuters SDC, U.S. Treasury, Fannie Mae, Freddie Mac,

Ginnie Mae, Farmer Mac, Farm Credit, FHLB

US Treasury Issuance and Outstanding

• Issuance & Outstanding – Includes marketable securities only.

• Interest Rates – Averages for the month and year.

• Source: U.S. Treasury, Thomson Reuters

US Treasury Average Daily Trading Volume

• Note – Primary dealer activity

• Source: Federal Reserve Bank of New York

US Corporate Bond Issuance

• Notes – Includes all corporate debt, MTNs and Yankee bonds, but excludes all issues with maturities of one year or less and

CDs. – Average maturity is based on non-convertible debt issuance, rather than outstanding, volumes.

• Source: Thomson Reuters

US Corporate Average Daily Trading Volume

• Notes: Annual and quarterly figures are sourced from FINRA's yearbook when available. Monthly figures are sourced from

daily reporting and are subject to 5:15pm cutoff which causes monthly volumes to be understated. Monthly 144A data is

available only from July 2014 on. – Publicly traded data includes non-convertible corporate debt, MTNs, and Yankee bonds,

but excludes all issues with maturities of one or less and CDs.

• Source: FINRA TRACE, FINRA Fact Book



US Municipal Bond Issuance

• Issuance – All issuance figures are based on deals with maturity of 13 months or greater.

• Average Maturity – Average maturity is based on issuance, rather than outstanding, volumes. Maturity year is based on final

date of maturity of the issue.

• Source: Thomson Reuters

US Municipal Trading

• Source: MSRB EMMA

US Agency Debt

• Changes, 2017 Q3 – Farmer Mac data from 2016: Q4 onward now reflect maturity breakouts based on contractual maturity on

issuance.

• Sources: FNMA, FHLMC, FFCB, FAMC, FHLB, TVA, Federal Reserve archives

• Short and Long Term – Long-term and short-term breakouts are based on contractual maturity on issuance; <1 year debt will

not include long-term debt due within a year except for Farmer Mac prior to 2016: Q4.

• Structured Products – Figures do not include structured products (e.g., student loan ABS from Sallie Mae, MBS from

FNMA/FHLMC, etc.).

• GSEs & Agencies Tracked – FNMA, FHLMC, FFCB, FHLB, TVA, and FAMC. SIFMA does not actively track debt levels of

other US GSEs or agencies.

US Repo and Reverse Repo Data

• Tri-Party

o Data – Subcategories may no longer add up to totals listed due to omission of asset classes with fewer than 3

dealers.

o Source: Federal Reserve Bank of New York

• Primary Dealer

o Data – Primary dealer financing values include both triparty and bilateral agreements. Figures cover financing

involving U.S. government, federal agency, corporate and federal agency MBS securities. Beginning in April 2013,

figures also include equity and other securities; beginning in January 2015, figures also break out ABS.

o Source: Federal Reserve Bank of New York

• GCF Repo

o Data – GCF Repo data are only overnight rates and dollar amounts. Figures are total nominal value of GCF repos

submitted for clearing to FICC.

o Treasury – Treasury securities are containing those securities 30-year or less.

o Agency – Agency debenture securities.

o MBS – 30Y MBS securities issued by Fannie or Freddie.

o Source: DTCC

US Mortgage-Related Issuance and Outstanding

• Mortgage-Related Changes

o 2017 June – Beginning in June 2017, multifamily credit risk transfer has now been broken out in CMBS.

o 2016 September – Risk transfer (agency and non-agency) and single family rental securities have been moved from

ABS to MBS - RMBS for issuance. Outstanding values will reflect this change in the 2016 Q3 reporting.

o 2016 Q2 – Beginning in 2Q'16, all non-agency home equity securitizations have been consolidated in RMBS; a new

non-agency CMBS and RMBS addendum tab has been added for clarity.



o 2015 Q4 – Beginning in 4Q'15, Freddie Mac 1-4 family and multifamily outstanding breakdowns have been changed

to reflect changes in 10K and 10Q filings.

o 2015 June – As of June 2015, all non-agency CMBS and RMBS issuance data has been supplemented with data

from Bloomberg beginning in 2008. Revisions to issuance data will be made quarterly. Sources for CMBS and RMBS

issuance are now Dealogic, Thomson Reuters, and Dealogic.

o 2014 Q3 – As of 2014 Q3, Option ARMs have been included in Alt-A. Outstandings have been changed to reflect the

addition.

• Mortgage-Related Issuance

o Agency Securitizations – Agency issuance includes both agency & residential and multifamily securitizations from

Fannie Mae, Freddie Mac, or Ginnie Mae excluding risk transfer deals. All other government agency or GSE

securitizations/guarantees and GSE risk transfer deals are part of non-agency ABS or MBS.

o CMBS – CMBS resecuritizations and ReREMICs are included in issuance totals.

o NIMs – All NIM deals are included under MBS - Resecuritization.

o Sources: Federal Agencies (FHLMC, FNMA, GNMA, NCUA, and FDIC), Bloomberg, Dealogic, Thomson Reuters

• Mortgage-Related Outstanding

o Non-Agency – Non-agency MBS includes both CMBS and RMBS. Resecuritizations and Re-remics are included and

underlying collateral may overlap.

o Sources: GSEs, Bloomberg, Eikon, Dealogic, Fitch Ratings, Moody’s, S&P, Thomson Reuters, SIFMA

o Sources: Thomson Reuters Eikon, Bloomberg, prospectus filings, Fitch Ratings, Moody's, S&P, SIFMA

• US Agency MBS Issuance and Outstanding

o Issuance – Agency securities include both multi- and single-family. Freddie Mac began issue in 1971, Fannie in 1981.

Fannie Mae CMOs include strip issuance.

o Federal Reserve Differences – Totals may not be exact matches to Federal Reserve totals due to consolidation of

trust data and classification of certain securities; FNMA data reported prior to 2010 to the Fed differ to a greater

extent than the other agencies. MBS values reported in the Federal Reserve may differ slightly from values reported

by FHFA.

o FHLMC – Beginning in 4Q'15, 1-4 family MBS outstanding are single family mortgage-related securities outstandings

of consolidated trusts plus unconsolidated other mortgage-related securities. Multifamily outstandings are from

consolidated trusts as well as unconsolidated K certificates and other unconsolidated securitization products. Totals

may not add up due to rounding.

o Sources: Federal Reserve archives, HUD, FHFA, Fannie Mae, Freddie Mac, Ginnie Mae; data compiled by SIFMA

US ABS

• Recent Changes

o Changes, 2017 April – SBA pools have now been incorporated in ABS issuance under ABS - Other. This change has

been retroactively applied.

o Changes, 2016 Sep. (Issuance) – The housing-related securities category is no longer broken out; risk transfer and

rental securitizations have been moved into MBS. Servicing advances have been moved to ABS - Other. CDOs have

been removed from Other and into its own category. All data have been retroactively revised to reflect these changes.

Outstanding figures will reflect these changes beginning in 2016 Q3.

• Issuance

o Source: Bloomberg, Dealogic, Thomson Reuters

• Outstanding contains

o Auto – Auto (prime, near-prime, subprime) loans and leases; auto dealer floorplans; RV; motorcycle; fleet lease

o Credit Card – Credit cards, resecuritizations of credit card securities

o Equipment – Equipment, resecuritizations of equipment securities. Includes both small and large ticket. As of 2013:

Q1, truck leasing has been moved into equipment and totals subsequently reflect this change; as of 2014: Q4, large

ticket transportation deals (aircraft, container, railcar) have been moved into this category.



o Student Loans – Student loans, public and private. Due to the nature of this particular submarket, student loan ABS

outstandings are an undercount of true totals. Deals may be bucketed within municipal or ABS categories based on

the deal structure and issuer choice of market.

o Other – Anything that does not fit into any of the above categories, including those with mixed asset categories (e.g.,

tax liens, trade receivables, boat loans, etc.)

o CDO – All tranches of CDOs denominated in USD, regardless of collateral source

o Agency Debt – Agency securitizations of ABS securities are included in outstanding totals (e.g., Resolution Trust

Corporation, Sallie Mae pre-privatization, Farm Credit, etc.) with the exceptions of Ginnie Mae, Fannie Mae, and

Freddie Mac.

o Sources: Bloomberg, Dealogic, Thomson Reuters, prospectus filings, Fitch Ratings, Moody's, S&P, SIFMA – All

subcategories are subject to revision.

ABS Outstanding – Addendum

• Notes – Subsets of overall ABS categories are selections and are not designed to add up to totals; only Auto and Student

Loan subcategories do so. Outstanding by ratings are current rating, not rating assigned at issuance.

• Changes, 2016 Q4 – Large time deposits are no longer reported.

• Source: Federal Reserve

US Structured Trading Volume

• Changes

o 2016, March – Beginning Q2 2015, all data in the FINRA Trace Fact Book tabs are based on remaining principal

balance rather than original principal balance. Data that have remaining principal balance information available

beginning Q1 2015 are noted in italics.

• TRACE Data

o Monthly Averages – Monthly averages are derived from daily TRACE reporting and will be an undercount to the

averages reported quarterly from the TRACE Fact Book due to differences in cutoff times, <5 trades, and difference

in reporting values (with or w/o factors applied); see FINRA's Trace's Structured Product Reports FAQ for more

detail.

o CMBS – CMBS trade volumes are aggregated ultimately under our non-agency trading figures. Please note that

agency CMBS trading volumes are, however, reported under CMBS instead of agency CMO.

o * Trades – Trade categories marked as * (<5 trades) are counted as 0 and will affect totals and averages in the daily

and monthly averages.

o Source: FINRA Trace, NY Fed

Authors


Authors

Author

Katie Kolchin, CFA

Senior Industry Analyst

SIFMA Insights

Contributors

Rob Toomey

Managing Director, Associate General Counsel

Rates & Repo

Chris Killian

Managing Director

Corporate Credit, MBS & ABS

Michael Decker

Managing Director

Municipal Securities

sifma insights - fixed income market structure primer · 2019-12-19 · fixed income markets...

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