1  The “Desk” refers to the Federal Reserve Bank of New York’s trading desk, which implements monetary policy on behalf of the Federal Reserve System, as directed by the Federal Open Market Committee. 2  This figure is based on recent volume trends in the Federal Reserve’s FR2004 database. This figure is not adjusted for double-counting issues that arise from primary dealers reporting transactions with other primary dealers. FR2004 also represents an incomplete picture of liquidity provision in the Treasury market, as it only captures activity conducted by primary dealers. BIS central bankers’ speeches  1  Global investors use Treasuries for investing and hedging purposes, and as benchmarks for pricing other types of assets. In addition, many in the public and private sectors use Treasury yields to glean information about expectations for the future course of the U.S. and global economy. Treasury securities originate in the primary market, where the Federal Reserve Bank of New York, in its capacity as fiscal agent for the U.S. Treasury, works with primary dealers to facilitate the auction process.3 Auctions are open to primary dealers, their customers, and direct bidders.
In a comparison of the profile in 2016 with the profile in 2005 and 2010, the most striking feature is that interest burdens rise in many age groups. The age profile itself is little changed. A similar chart showing the distribution of higher interest expenses across income deciles would have shown the same picture. Even though many households will feel the effects of higher interest expenses, the increase will be manageable for most people. The share of households with high debt relative to income, low debt-servicing capacity and a high loan-to-value ratio is small, and lower than just a few years ago (Norges Bank (2017)). Chart: Higher bank deposits dampen some of the effect of higher debt How quickly an interest rate increase will lead to lower growth in consumption also depends on the size of households’ financial buffers. Buffers in the form of bank savings can be drawn down if interest expenses rise, reducing the need to adjust consumption. Even though some households have little in the way of financial buffers, many households’ buffers are larger than just a few years ago. Despite the rise in debt ratios between 2010 and 2016, an interest rate increase will lay claim to a smaller share of bank deposits, particularly for the groups with the highest level of net debt. This will counteract some of the effect a higher level of debt has had on 6/7  BIS central bankers' speeches  the impact of an interest rate increase via the cash-flow channel.