Research

Job Market Paper

[Coming soon]

This paper presents evidence that the leveraged positioning of hedge funds amplifies the response of sovereign bond yields to shocks, leading to temporary overshooting. Combining granular regulatory transaction-level data on repo positions with high-frequency monetary policy surprises, I find that approximately one-third of the total yield movement on days with monetary policy surprises is associated with hedge fund trading, and that this effect scales with positioning intensity. Within-dealer comparisons further show that the amplification operates through hedge fund positioning rather than through the behavior of the dealers that intermediate their trades. The amplification operates through two distinct channels. When a shock moves prices against the position, the resulting mark-to-market loss erodes the capital buffer and forces funds to reduce their exposure. When a shock moves prices in favor of the position, funds build upon their exposure through trend-following and anticipatory trading. Both channels push yields further in the direction of the initial shock.

Working Papers

ECB Working Paper Series, No. 3065, 2025

[Presented at 2025 ECB Money Market Conference - Video] [Featured on FT Alphaville and Risk.net]

with M. Schmeling, A. Schrimpf

We analyze the international dimension of repo markets using novel euro area regulatory microdata. Our findings highlight the deep integration of funding markets across the Atlantic and the US dollar’s outsized role. Our paper documents five key facts: (1) US dollar repos by euro area entities account for approximately 40% of total volumes and are comparable in size to euro repos; (2) term repos (with maturities beyond one day) are quantitatively more relevant than commonly thought, especially non-centrally cleared ones; (3) repo markets have become more collateral-driven, involving diverse nonbank financial players and trading motives; (4) banks' intragroup transactions form a large share of non-centrally cleared volumes; and (5) haircuts, even for riskier collateral, are often zero or negative, especially in euro trades. We show in two empirical applications that US monetary policy shocks spill over to euro repo rates and that negative haircuts arise from market power and collateral demand dynamics.

Finance Research Letters, Vol. 71, 2025

with M. Grill, M. Wedow

We use transaction-level data on the euro area repo market to assess the calibration of the Financial Stability Board's (FSB) recommended minimum haircut framework and its impact on leverage in non-bank financial institutions. We find that market haircuts are currently not in line with the framework. Therefore, a market failure exists that needs to be addressed by regulation, such as the minimum haircut framework. In assessing its potential impact, we find that it would affect larger and more leveraged entities the most, indicating its capability to make a meaningful contribution to addressing risks from leverage in non-bank financial institutions.

Journal of Financial Regulation, Vol. 11, 2025

with C. Bassi, M. Grill, H. Mirza, C. O’Donnell, M. Wedow

The introduction of the Securities Financing Transactions Regulation into EU law provides a unique opportunity to obtain an in-depth understanding of repo markets. Based on the transaction-level data reported under the regulation, this article contributes to the literature with key facts about the euro area repo market. We start by providing the regulatory background, as well as highlighting some of its advantages for financial stability analysis. We then go on to present three sets of findings that are highly relevant to financial stability and focus on the dimensions of the different market segments, counterparties, and collateral, including haircut practices. Finally, we outline how the data reported under the regulation can support the policy work of central banks and supervisory authorities and contribute to the existing literature on repo markets. We demonstrate that these data can be used to make several important contributions to enhancing our understanding of the repo market from a financial stability perspective, ultimately assisting international efforts to increase repo market resilience.

[coming soon]

with G. Angelis-Alexiou, B. Nguyen, D. Tomio

[coming soon]

with C. Bassi, F. Lenoci, R. Pizzeghello

BIS Bulletin, 2025

with M. Schmeling, A. Schrimpf

This BIS Bulletin investigates the drivers of repo haircuts and their critical role in determining financial leverage, finding that haircut levels rely heavily on the underlying trading motive. The analysis reveals that while funding-driven trades generally carry higher haircuts to protect cash lenders, collateral-driven trades often feature lower or even negative haircuts to incentivize the lending of scarce securities. A key stability concern highlighted is that large hedge funds frequently access zero-haircut borrowing due to their significant market power and strong dealer relationships. This preferential treatment allows these major market participants to build up substantial leverage, potentially exacerbating financial stress during periods of market volatility.

ECB Macroprudential Bulletin, 2025

with M. Grill, M. Wedow

We use transaction-level data on the euro area repo market to assess the impact of the Financial Stability Board’s (FSB) recommended minimum haircut framework on leverage in non-bank financial institutions. We find that it would affect larger and more leveraged entities the most, indicating its capability to make a meaningful contribution to addressing risks from leverage in non-bank financial institutions.

ECB Financial Stability Review, 2024

[Featured on Bloomberg Markets and Risk.net]

with C. Bassi, S. Kördel, F. Lenoci, R. Pizzeghello, A. Sowinski

Basis trades are arbitrage strategies which exploit mispricing between the spot price and the futures price of a given security. They improve market functioning but are also subject to funding and liquidity risks, especially when excessively leveraged. Hedge funds have built up leveraged exposures in the US Treasury market, giving rise to financial stability concerns. While risks are partly mitigated by already elevated margin requirements in the futures market, disruptions in the repo market could still force some entities to unwind their basis trades. Given the role of US Treasury bonds as global risk-free assets, dislocations resulting from widespread unwinding of basis trades could spill over into other jurisdictions and asset classes. Furthermore, a build-up of hedge fund exposures has also been observed in the euro area government bond market, but the size of basis trade activity seems contained.