Repo-Capacity Shock and the Allocation of Treasury Intermediation

15:40-17:00, Friday, October 30, 2026

I-206, Boxue Building

Dr. Qian Wu is an Assistant Professor of Economics at Duke Kunshan University. She obtained a Ph.D. degree in Economics from Indiana University in 2025. Her research focus is the intersection between macroeconomics and finance. She is especially interested in how financial frictions and aggregate dynamics interact in general equilibrium.

Primary dealers intermediate Treasuries by holding bonds directly or by financing through repo. Before the financial crisis the two channels moved in opposite directions. Since then, they move together, and the repo-financed share has fallen from 104% to 93%. In stress episodes the repo share drops, by 3.4% on average. A preferred-habitat model with shocks to dealers' repo capacity accounts for all three facts. Arbitrageur risk aversion cannot replace the repo-capacity shock: it pushes pre-crisis co-movement in the wrong direction, and it cannot explain stress episodes in which term premia fell.

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