Working Papers

The On-the-run Discount

With Zhuolu Gao (This version: May 2026) 

Abstract: The on-the-run premium is one of the most widely studied phenomena in fixed-income markets. Contrary to this phenomenon, we document that Treasury bills trade at an on-the-run discount. This discount arises because Treasury bills become more attractive to traders as they age. The age and available supply of a Treasury bill are two key drivers of both its borrowing cost in the repo market and its yield. Price-sensitive investors respond to the discount, but their investments are insufficient to correct it. The Treasury could have saved up to $25.6 billion in issuance costs if it were able to finance itself at off-the-run yields. 

Benchmark Interest Rates in the SOFR Era

With Matthias Fleckenstein and Olav Syrstad (This version: June 2025) 

Abstract: The adoption of the Secured Overnight Financing Rate (SOFR) as the predominant floating rate for interest rate swaps introduces a new class of benchmark interest rates. Using no-arbitrage arguments, we establish three novel facts about the relationship between SOFR swap rates and other key benchmarks. First, the basis between swaps referencing the Effective Federal Funds Rate (FFR) and SOFR provides a new measure of the cost of funding Treasury positions. Second, SOFR swap spreads are less volatile and less sensitive to Treasury convenience premiums than FFR swap spreads. Third, SOFR swap spreads are positively correlated with the FFR-SOFR basis and directly reflect arbitrageurs' financing costs.

The Last Days of LIBOR

With Matthias Fleckenstein and Olav Syrstad (This version: May 2025) R&R

Abstract: We use the "last days of LIBOR"-the period before the last published London Interbank Offered Rate (LIBOR)-to study how financial markets adapt to changes imposed by regulators. Focusing on interest rate derivatives, we find that their prices respond quickly to regulatory changes affecting their cash flows. This response spills over to unaffected contracts, resembling a liquidity spiral. Moreover, an unexpected regulatory change has a lasting impact as markets incorporate the risk of future unexpected changes. Our findings provide insights into market reactions to policy shifts, highlighting risks to market resilience and the importance of predictable regulatory implementation.

CLO trading of brown loans

With Kathrin Hackenberg, Viktoria Klaus, and Talina Sondershaus (This version: January 2024) R&R

Abstract: Collateralized Loan Obligations (CLOs) are the main investors in leveraged loans, and we show in this paper that they take advantage of heightened media attention to climate change. Utilizing transaction data on leveraged loans, we find loans of firms in carbon-intensive industries trade at a discount when media attention to climate change is elevated. CLOs take advantage of these price discounts by tilting their portfolios toward carbon-intensive industries. This portfolio tilting is still present for CLO managers who signed the principles of responsible investing (PRI) and thereby committed to considering environmental factors in their investments. Hence, CLOs are one investor class purchasing from institutional investors who divest from brown industries.

Issuer Certification in Money Markets

With Olav Syrstad and Aleksandra Rzeznik - New version coming soon

Abstract: Using comprehensive issuance-level information for dollar-denominated short-term debt, we show that investments by money market mutual funds (MMFs) significantly reduce issuers’ funding frictions. Issuers without MMF funding pay approximately 10 basis points more for placing their short-term debt, even when comparing issuers with small MMF investments to issuers without MMF investments. Funding costs increased for issuers who lost their MMF investors because of an exogenous regulatory shock to the MMF industry in 2016. Issuers who lose their MMF investors reduce their outstanding
short-term debt by more than 50% and issue debt with shorter durations, suggesting that MMF investments reduce an issuers’ funding fragility.

Disclosing the Undisclosed: Commercial Paper as Hidden Liquidity Buffers

With Olav Syrstad - New version (December 20, 2022)

This paper subsumes our old working paper "Cash is Not King: Evidence from the Commercial Paper Market"

Abstract: Using new transaction-level data for non-financial commercial paper (CP) in the U.S., we show that companies systematically reduce their outstanding short-term debt on quarterly and annual disclosure dates. Constraints on CP lending supply cannot explain this pattern. Instead, companies optimize their disclosed liquidity buffers and strategically repay CP debt if doing so strengthens common accounting ratios, such as the current ratio. Unlike other CP issuers, firms that repay their CP debt neither hold lower cash buffers nor use CP as bridge financing, suggesting an alternative role of CP debt as “hidden liquidity buffer”.