Foreign Central Bank Activities in U.S. Futures Markets

We analyze the daily positions of 31 foreign Central Banks in U.S. interest rate futures markets between 2003 and 2011 for targeted hedging or informed profit-making decisions. Central Bank positions before the financial crisis of 2007-2009 are consistent with hedging some underlying balance sheet exposure. During and after the crisis, the pattern suggests an attempt to enhance returns. In particular, Central Banks held and profited from directional positions in 5- and 10-year T-Note futures in a manner indicative of a non-hedging strategy. We also examine whether Central Bank position changes are synchronized in the sense that they tend to occur simultaneously. We identify differences before and after the onset of the financial crisis: Euro-linked Central Banks become more synchronized, whereas non-European Central Banks show no significant change during the crisis. We also document that Central Bank positions generally account for a small fraction of the overall size of the futures markets, so it is unlikely that these institutions' goal is to influence U.S. interest rates