Foreign Central Bank Activities in U.S. Futures Markets 

Raymond P. H. Fishe

Michel A. Robe

and

Aaron D. Smith*

This draft: October 2, 2014

ABSTRACT

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. 

Keywords: Central Banks, Reserve management, Interest-rate derivatives, Hedging, 

Speculation, Financial crisis, Synchronized trading 

JEL classification: E58, G11, G01

*Fishe: U.S. Commodity Futures Trading Commission (CFTC) and Department of Finance, Robins School of Business, University of Richmond, 

Richmond, VA 23173. Tel: (+1) 804-287-1269. Email: pfishe@richmond.edu. Robe: CFTC and Department of Finance, Kogod School of 

Business, American University, Washington, D.C. 20016. Tel: (+1) 202-885-1880. Email: mrobe@american.edu. Smith: Department of 

Agricultural and Resource Economics, University of California at Davis, Davis, CA 95616. Email: adsmith@ucdavis.edu. Tel: (+1) 530-

752‐2138. We thank an anonymous referee for useful suggestions. We thank a number of individuals including senior officials at several Foreign 

Central Banks for helpful discussions; participants at the 2012 IFABS Conference in Valencia, Spain, at the Fourth World Bank – Bank for 

International Settlements (BIS) Public Investors Conference in Washington, DC and at research seminars at the Banque de France, the CFTC and 

American University, for useful remarks; Jim Moser, Margie Sweet, Chris Whacker and Steve Cho, for helping us with historical CFTC data; 

Inci Ötker-Robe, Karl Habermeier and their staffs at the International Monetary Fund (IMF), for providing comprehensive time series of de facto

foreign exchange regimes; Toby Kearn and Yang Liu, for helping summarize public data on Central Bank reserves; and Casey Petroff, for overall 

research assistance. Corresponding author: Raymond P. H. Fishe.

CFTC Disclaimer: The research presented in this paper was co-authored by Aaron Smith, a former CFTC contractor who performed work under a CFTC OCE 

contract (contract CFCE-11-CO-1128), and Michel Robe and Raymond Fishe, who are both CFTC limited-term consultants. The Office of the Chief Economist and 

CFTC economists produce original research on a broad range of topics relevant to the CFTC’s mandate to regulate commodity futures markets, commodity options 

markets, and the expanded mandate to regulate the swaps markets pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. These papers are 

often presented at conferences and many of these papers are later published by peer-review and other scholarly outlets. The analyses and conclusions expressed in this 

paper are those of the authors and do not reflect the views of other members of the Office of the Chief Economist, other Commission staff or the Commission itself. 

Errors and omissions, if any, are the authors’ sole responsibility. 
1

Foreign Central Bank Activities in U.S. Futures Markets 

1. INTRODUCTION

Most Central Banks disclose little information about their activities in derivatives markets. 

When there is public disclosure, it usually occurs in annual reports, is limited in scope, and often

claims hedging as a motive for derivatives positions. Only a few Central Banks admit that they 

seek to enhance returns with such positions. We investigate these claims by testing whether 

Central Banks’ actual positions in U.S. interest-rate futures markets are consistent with targeted 

hedging or, alternatively, speculative activities. We pay special attention to trading during the 

financial crisis of 2007-2009 because low interest rates and macroeconomic uncertainty in that 

period may have caused greater risk taking, perhaps due to reserve managers’ incentive schemes1

or the need to fund government treasuries.

2

We also ask whether the 2007-2009 financial crises brought about greater synchronization of 

Central Banks’ futures trading. Although several papers investigate how Central Banks changed

their reserve holdings after the onset of the crisis, our interest is in whether the financial crisis 

influenced their incentive to use derivatives, leading to more synchronized behavior in futures 

markets.3Importantly, while a single Central Bank’s futures trades may have a benign effect on 

prices, if a set of those institutions react in similar ways to exogenous shocks, then the combined 

effects may be of consequence to other market participants and to market regulators. 

 

1

For example, Scalia and Sahel (2012, p. 1) document “the existence of risk-shifting behavior by (European Central 

Bank or ECB-linked) reserve managers related to their year-to-date ranking: interim losers increase relative risk in 

the second half of the year, in the same way as mutual fund managers.” These authors show that those managers’ 

risk-taking incentives are magnified by the annual frequency of reports to the ECB Governing Council and, 

consequently, the nature of the managers’ reputational reward structure. More generally, Remolona and Schrijvers 

(2004, p. 97) argue that, in an environment “of historically low yields on highly-rated government securities, Central 

Bank reserves managers seek instruments with higher yields in an effort to enhance returns.”

2 Usually, Central Banks return net surpluses to their own governments’ treasury, which may encourage profitmaking to reduce political pressure on bank managers. Dominguez, Hashimoto and Ito (2012, p. 389) argue that the 

Bank of Japan (and possibly the People’s Bank of China) engage(s) in carry trades for a profit-making motive. 

3

See, for example, Dominguez (2012), Steiner (2013) and references cited therein. 
2

To investigate Central Bank futures trading, we create a comprehensive, trader-level dataset 

of the daily positions of all 31 foreign Central Banks that held reportable positions in U.S. 

interest rate futures markets for the years 2003-2011. These unique, non-public data are from the 

U.S. Commodity Futures Trading Commission (CFTC), which keeps records on the end-of-day 

positions of all large traders in futures markets. This information is confidential, so we present 

our analysis in a way consistent with the CFTC’s privacy rules. 

We also analyze the publicly available data on foreign reserves and the notional or market 

values of derivatives holdings for Central Banks. This public information comes from surveys by 

the International Monetary Fund (IMF) and individual Central Banks’ own annual reports. Of 

more than 70 Central Banks that voluntarily provided foreign reserves data for dissemination by 

the IMF in 2011, only 22 reported derivatives use. Of the 31 Central Banks in our CFTC sample, 

more than 10 are absent from the IMF dataset, which suggests significant under-reporting in the 

IMF data. While helpful, the IMF database does not provide information on notional values, 

breakdowns between over-the-counter (OTC) vs. exchange-traded positions, or on underlying 

assets. By itself, it is inadequate to assess a Central Bank’s purpose for trading derivatives. 

To supplement the IMF data, we examine the annual reports of 70 Central Banks between 

2005 and 2010. Some Central Banks reveal extensive facts about their derivatives positions, 

including notional and market values, the types of derivative instruments used (forwards, futures, 

options, swaps, etc.) and periodic gains and losses. The least transparent Central Banks do not 

mention derivatives at all, even though it is understood by market participants that they use such 

instruments in reserve management. The remaining Banks do not offer any rationale for why 

they hold derivative positions. In all cases, the annual reports are accounting statements and 

show only stocks at a certain time or aggregate flows over a year. 
3

To gain additional insight into Central Bank motives, we use the CFTC-sourced dataset on 

daily positions in the four interest rate futures markets most used by the Central Banks in our 

sample: Eurodollars as well as 2-, 5- and 10-year Treasury notes. The daily magnitude of Central 

Banks’ U.S. futures positions, while large individually, are generally small compared to the 

overall market, which suggests no intention to affect U.S. interest rates. Accordingly, we 

investigate alternative reasons for Central Banks’ use of these markets. 

We argue that pure hedgers might adjust their futures positions in response to volatility 

changes but would not adjust them consistently in response to changes in the price level. Using 

this argument as the basis of a test, we find mixed evidence that Central Bank positions are 

consistent with hedging some underlying balance sheet exposure. Before the crisis, a hedging 

motive has support, but during and after the 2007-2009 financial crisis, our results suggest an 

attempt to enhance returns on foreign reserve assets. The latter result is most prominent for fiveand 10-year T-Note futures, in which Central Banks changed positions in the same direction as 

prices during and after the crisis. The results that challenge the hedging motive are even stronger 

for Euro-linked Central Banks, whose interest rate futures positions were more profitable than 

other Central Banks’ during the crisis period. We address possible reasons why our test could 

falsely reject hedging (e.g., if Banks experienced repeated unexpected balance sheet changes), 

but we argue that these reasons are not sufficient to explain our results. 

We also find differences in the degree of co-movement or synchronization of Central Banks

positions before and after the onset of the 2007-2009 financial crises. Only Euro-linked Central 

Banks became more synchronized in their trading during the crisis period—consistent with the 

notion that they were affected by common shocks or, perhaps, coordinated their policy actions. 
4

Overall, our results clarify the claims made in public documents about Central Banks’ 

hedging motives. We establish that the hedging motive is present, but during the crisis profitlinked actions and common reactions to shocks also explain individual Banks’ futures positions. 

The remainder of the paper is structured as follows. Section 2 outlines the related literature. 

Section 3 analyzes the information contained in public documents. Section 4 discusses our 

empirical methodology. Section 5 describes the trader-level information from the CFTC and the 

data used in our analyses. Sections 6 presents the results and Section 7 offers our conclusions. 

2. RELATED LITERATURE

The present paper contributes to the literature on Central Bank policy as well as the research 

on hedging balance sheet risk. Dominguez, Hashimoto and Ito (2012, p. 395) note that 

“researchers would like data on the types of securities (by currency, maturity, and risk-class) and 

types of deposits (by currency, type of financial institution taking deposits, and domestic or 

foreign) held in Forex (reserves) in order to analyze portfolio management of foreign currency 

reserves and intervention policy. However, in most countries, this kind of detailed information is 

not made public.” Our analysis is partly a response to this observation. We focus on specific 

derivative markets in which we know the contractual details and can follow the actual holdings 

of Central Banks. Therefore, while we make inferences from only one part of the Banks’ balance 

sheets, it is a part that explicitly reveals their risk exposure. 

Our paper is closely connected to the 20 case studies published by the International Monetary 

Fund (IMF, 2003a, 2003b) and to Blejer and Schumacher (2000). These case studies shed light 

on official reserves management practices in IMF member countries but offer a limited analysis 

of derivatives data. Blejer and Schumacher (2000) focus on derivative use “as policy tools, i.e., 
5

operations designed to influence variables such as the exchange rate or the interest rate (p. 4).” 

These authors’ portfolio analysis is hypothetical, however, due to data limitations. 

This paper is part of a growing body of research on foreign reserve management. Generally, 

it is argued that Central Banks do not try to influence asset prices in that context. Dominguez et 

al. (2012), Scalia and Sahel (2012), and Dominguez, Fatum and Vacek (2013) are recent 

advances. The extant papers, in contrast to ours, generally abstract from the use of derivatives by 

Central Banks. Indeed, a lack of data has meant that investigations of derivative use has been 

limited to theoretical analyses, such as those of Caballero and Panageas (2005) or Claessens and 

Kreuser (2007), or analyses of how derivatives may help improve reserve risk management. 

Our analysis is also connected to the finance literature on hedging by banks and corporations. 

Booth, Smith and Stolz (1984) provide an early survey of the literature on derivatives trading by 

financial institutions. Purnanandam (2007) argues that most such trading is tied to hedging. He 

analyzes “the effects of bank characteristics and macroeconomic shocks on interest rate risk

management behavior of commercial banks” (p. 1769). Financial distress is a key issue in this

context, but is not directly relevant to the hedging motives of Central Banks.

At non-financial firms, there is considerable survey evidence that managers’ market views 

affect their risk management decisions.

4

Econometric studies by Brown (2001), Adam and 

Fernando (2006), Brown, Crabb and Haushalter (2006), Chernenko and Faulkender (2011) and

Beber and Fabbri (2012) find evidence of “selective hedging” (Stulz, 1996) or outright 

speculative behavior by corporate managers. Using uniquely detailed information to calculate

profits and losses from derivative positions, we document both hedging and speculative interestrate futures trading by Central Banks. 

 

4

See Dolde (1993) or Bodnar, Hayt and Marston (1998) for U.S. firms, or Glaum (2002) for German firms. 
6

Our study is also connected to the finance literature that asks whether some traders’ 

derivative positions contain valuable information. Fishe and Smith (2012) find evidence that 

only a small fraction of futures traders are informed for short horizons and document that these 

informed traders are not typically the more fundamental traders (such as manufacturers or 

producers). A longer-term view is provided by Fernando and Raman (2010), who document that 

Canadian gold producers’ stock price reactions to changes in hedging are “consistent with the 

market believing that (these) firms have credible private information about future gold prices (p. 

2).” Our analysis complements the above studies by providing evidence that some Central 

Banks’ interest rate futures trading is profitable, especially during the financial crisis. We further 

contribute by showing that Euro-linked Central Banks’ trading actions during the Great 

Recession are consistent with similar market views or similar underlying hedging demands. 

3. PUBLIC INFORMATION ON CENTRAL BANK ACTIVITIES IN DERIVATIVES MARKETS

Public information on Central Bank derivative activities is collected by the IMF and also 

revealed in annual reports. Although limited and low-frequency, this information is helpful 

because it reveals to market participants the reality of Banks’ involvement in derivatives markets 

and provides an occasional explanation for the objectives behind their positions.

3.1. IMF Survey of Central Bank Practices and Motives for Trading Derivatives

In an investigation of Central Bank practices in its member countries, the IMF found 

derivatives trading at 16 out of 20 institutions it surveyed (IMF 2003a, p. 32). Detailed country 

case studies (IMF, 2003b) reveal that those Central Banks traded interest rate futures, forwards, 

and swaps, “though the nature of derivatives allowed varies from country to country (IMF 2003a, 

p. vi).” Central Banks reported using interest rate-linked derivatives for three purposes: to 
7

manage risk, synthetically replicate portfolio positions with more liquid instruments or improve 

the risk-return profile of the Central Bank’s existing reserves portfolios. 

While informative, the IMF survey does not provide cardinal measures of the magnitude of 

the derivatives positions held by Central Banks. To fill this void, the IMF developed a monthly 

dataset on foreign exchange reserves and financial derivative holdings (Section 3.2), which we 

supplement using Central Banks’ own annual reports (Section 3.3). 

3.2. IMF database of Official Reserves and Derivatives Positions

As Pihlman and van der Hoorn (2010, p. 11) remark, “[the] most extensive and consistent 

dataset available on reserve levels and composition is collected by the IMF. This dataset consists 

of reserve data from countries that voluntarily subscribe to the Special Data Dissemination 

Standard (SDDS) and report the data according to a common template.”

5

Two features of the 

IMF’s SDDS dataset make it informative for this study.6First, amounts are all expressed in U.S. 

dollars, allowing for meaningful cross-country comparisons. Second, the reporting template 

provides information on the market values of derivatives positions.

Figure 1 shows that the number of Central Banks reporting foreign reserves information in 

the IMF’s public database (blue line) has increased substantially since 2000. As of the end of 

2011, information was available for 72 foreign Central Banks (vs. fewer than 40 at the end of 

2000), including almost all of the largest institutions. Figure 1 (green line), however, shows that

less than one third of Central Banks reported derivatives positions with non-zero market values

in each year in the last decade.

 

5

See International Monetary Fund, “Dissemination Standards Bulletin Board: Special Data Dissemination 

Standards,” available online at http://dsbb.imf.org/Pages/SDDS/Home.aspx

6 The SDDS dataset has one major disadvantage for our goals because it excludes any breakdown of Central Bank 

positions by underlying asset or market (exchange-traded vs. OTC). This missing information rules out identifying 

the underlying purposes of Central Banks’ derivatives trading.
8

A more detailed analysis of the SDDS dataset shows that 53 of these 72 Central Banks either 

did not provide complete information or did not use financial derivatives. Of the 19 banks that 

did provide complete information, only 10 report exposure in any year exceeding (plus or minus) 

one percent of foreign currency reserves (with extremes ranging from -9.93 percent to 17.57 

percent). These data suggest that not many Central Banks are involved in derivative markets. 

Yet, the fact that we found 31 Central Banks in our CFTC sample (including some institutions 

absent from the public SDDS data) suggests a substantial reporting bias in the IMF database. 

Overall, the public SDDS database highlights that selected Central Banks use derivatives in 

their operations. To examine which derivatives they use, how much, and possibly why, we turn 

next to Central Banks’ annual reports. 

3.3. Derivatives Information in Central Bank Annual Reports

We collect the annual reports of all non-U.S. Central Banks listed in the IMF’s SDDS dataset 

for fiscal years 2005 to 2010 and add two large Central Banks not in that dataset: the People’s 

Republic of China and Taiwan-ROC (“SDDS+2”).7 After eliminating reports that could not be 

obtained in English, our sample size ranges from 67 (2005) to 70 (2010) institutions. 

The qualitative information we collect is whether the annual report discusses any derivatives 

activities and whether, in the affirmative, the institution provides one or more purposes for 

trading. Our approach is to search each annual report for derivatives-related terms such as (i) 

“derivative,” “futures,” “option,” “forward,” “swap” and “CFD”; (ii) “exchange-traded,” “overthe-counter” and “OTC”; (iii) “hedging,” “foreign (exchange) reserves” and “risk management,” 

(iv) “risk-return,” “speculation,” “trade-offs” and “opportunistic”. For each hit, we read and 

interpret the material before and after the search term’s occurrence. 

 

7 Most Central Banks provide these annual reports on their websites. When this information was not available 

electronically, we obtained hard copies from Central Banks’ public relation offices. 
9

The quantitative information collected includes the notional and fair values of Central Bank

derivatives positions, separated by instrument and market when provided. To find these data, we

peruse the financial statements for evidence of derivatives trading, income or notional positions. 

Table 1 provides counts of the information extracted from these annual reports. Table 2 

examines the type of derivatives held and the stated purposes for trading, using 2009 as the 

reference year. 

Blinder et al. (2008) state that Central Banks have “become remarkably more transparent in 

the last ten to fifteen years and are placing much greater weight on their communications” (p. 

911). Consistent with this idea, we find that discussions of Central Banks’ derivatives positions 

in their annual reports have become more detailed over time. In Table 1, the left half of Panel A 

shows that a shrinking number of Banks say nothing about their derivatives activities.

8

Approximately 75 to 80 percent of these Banks do mention trading derivatives—a figure 

consistent with the proportion of Banks reporting affirmatively in the IMF survey (IMF, 2003b). 

Only three Central Banks state explicitly that they do not trade any derivatives at all. 

The most transparent Central Banks’ provide annual snapshots of substantial positions in 

interest rate and foreign exchange-based instruments with some data on duration of the 

underlying asset class. In most other cases, the annual reports provide limited information about 

the magnitudes of such positions. Still, Panel B in Table 1 shows that, in any given year, at most 

three Central Banks that report using derivatives fail to specify the underlying asset. All the other 

Central Banks in our “SDDS+2” sample specify an underlying instrument: approximately 45%

say that they trade interest rate derivatives and 60% report trading foreign exchange derivatives. 

The annual reports of over 60% of all Central Banks either are silent or make only vague 

statements about a reason for using derivatives. As Table 1 shows, when a purpose is expressed, 

 

8

In 2009, for example, the annual reports of China and Mexico make no mention of using derivatives. 
10

the vast majority claim to trade for risk management or hedging purposes.9 Whether they trade 

interest rate derivatives or foreign exchange derivatives, only a handful of Banks acknowledge 

seeking to enhance returns or to synthetically replicate non-derivative financial instruments.10 

To further understand how derivatives usage varies among Central Banks, Table 2 

summarizes the textual information in the annual reports for fiscal year 2009. The sample is the 

same as in Table 1 (“SDDS+2”), but Table 2 splits the data between “Euro-linked” (Panel A: 

Eurozone national Banks, European Central Bank and Central Banks whose countries belong to 

the European Exchange Rate Mechanism but have not adopted the Euro); “Other OECD 

Members and Advanced Economies” (Panel B); and “Emerging Markets” (Panel C). We use a 

similar partitioning in the analyses of CFTC daily position data in Sections 4 to 6 below.

Table 2 shows that advanced economies’ Central Banks provide more information about

derivatives use. Only two Banks from “Other OECD” countries make no reference to derivatives 

(Korea, Mexico) – although two others (Germany, Singapore) refer to derivatives in only the 

most general terms as part of a discussion of accounting valuation principles.11 In contrast, Panel 

C in Table 2 shows that almost 30 percent of emerging markets’ Central Banks (10 out of 34,

including large countries such as China and Egypt) make no mention of using derivatives.12 

Among the Central Banks in Table 2, Norges Bank (Norway), Sveriges Bank (Sweden), the 

Reserve Banks of New Zealand and Australia, and the Banque de France are among the 

 

9

For example, the European Central Bank’s (ECB) 2009 report mentions using interest rates futures (plus currency 

forwards and various swaps) “as part of the management of the ECB’s foreign reserves and own funds” (p. 221). 

10 For example, the Reserve Bank of South Africa mentions that “the purpose of risk management emanating from 

reserves management operations is to protect the value of the country’s gold and foreign exchange reserves ... while

opportunistically taking positions to enhance returns” (emphasis added). Online statement accessed on September 

22, 2014: http://www.resbank.co.za/ReservesManagement/Pages/Reserves-management-framework.aspx

11 The Bundesbank’s 2009 report mentions derivatives in a general statement that “swaps, futures, forward rate 

agreements and other interest rate instruments shall be accounted for and valued on an item-by-item basis” (p. 147). 

12 We do not count references either to swaps with domestic banks meant to solve liquidity issues or to bilateral 

swaps between Central Banks (such as those between the U.S. Federal Reserve and a number of foreign Central 

Banks during the 2008-2011 financial crisis). 
11

institutions providing detailed information on their end-of-year positions in various derivatives 

as well as explicit information on their futures market activities.

Table 2 shows that all the Central Banks (55) that report trading derivatives in 2009 mention 

using over-the-counter instruments such as forwards or swaps. About 60 percent (21 out of 36) 

of the Banks in advanced economies (Panels A and B) also mention using futures with much of 

the trading involving interest rate futures – some domestic, but mostly foreign. In contrast, very 

few (4 out of 34) Central Banks from emerging markets report trading futures. Options are only 

mentioned in the reports of a few institutions. Also, confirming the results in Table 1, most 

Banks discuss hedging (or liquidity) motives for derivatives positions.

In sum, the public information on Central Banks’ derivatives positions has become more 

detailed over time. Still, what information is contained in annual reports is available at too low a 

frequency to test for the motives and profitability of Central Bank trading. To this end, we turn to 

the data on Central Bank positions in U.S. futures markets collected daily by the CFTC. 

4. METHODOLOGY

We investigate three characteristics of Central Banks’ futures positions in an attempt to

isolate their purpose. First, we consider whether their positions yield consistent profits. Certainly, 

Central Banks have access to superior information about their own actions that may affect 

market prices (e.g., Sarno and Taylor, 2001). Although the size of their futures positions seems

large, it is small relative to the size of these markets, so Central Banks could disguise their 

actions and use these markets to their advantage. Conversely, if hedging some balance sheet 

holdings is the goal, we might find consistently negative or positive profits from futures 
12

positions (depending on the underlying being hedged and the interest rate environment). Section 

4.1 devises a method to explore the daily profitability of Central Banks’ futures positions. 

Second, Section 4.2 proposes a test for hedging activity. The overall goal of hedging is to 

reduce or eliminate the effects of price fluctuations on underlying asset (or liability) values. Our

test addresses whether Central Bank’s futures positions are systematically affected by market 

price changes. If they are, there is evidence against a hedging purpose. 

Lastly, the CFTC daily position data allow us to look for evidence of synchronized Central 

Banks reactions to common external shocks. Because futures market positions are a limited part 

of balance sheets, we cannot conclude synchronization in Banks’ overall activities or policies. 

Section 4.3 explains the tests that we use to examine if Banks’ futures trades are synchronized.

4.1 Profits from positions and net trading

Central Bank participation in listed futures markets may be aimed at hedging specific interest 

rate risks on their balance sheet, particularly during the 2007-09 Recession when these Banks’ 

loan portfolios expanded. To examine this question, we evaluate the profitability of Central Bank

positions and net daily trading both during and outside of the crisis period. 

To compute profits, we first characterize the structure of our position data in light of the fact 

that it represents end-of-day holdings. Suppose a Central Bank begins day t with position x0,t

k

in 

contract k and makes Jk trades to end the day with position, xJk,t

k

, where for ease of exposition a 

positive value indicates a long position and a negative value indicates a short position. Let 

{x0,t

k

, x1,t

k

, x2,t

k

, ... , xJk,t

k

} denote the sequence of positions held by the bank during the day. Our 

dataset contains the daily open interest positions of reporting traders in each contract in each 

market, which means that we observe x0,t

k

and xJk,t

k

but do not observe intraday position changes.
13

Next, we show how we can represent daily profits as a function of observables and a single 

unobserved variable that we can approximate.

Aggregating over all trades (j=1, 2,..., J) and contracts (k=1, 2,..., K) on day t, we write the 

Bank’s daily profit as 

πt

∗ = ∑ ∑ xj,t

k

(pj+1,t

k − pj,tk

),

Jk

j=0

K

k=1

(1)

where pj,t

k

denotes the price of contract k at the time of trade j. The initial day t price, p0,t

k

, 

equals the previous day’s closing price and the final price, pJk+1,t

k

, is the day t closing price. We 

rewrite equation (1) as

πt

∗ = ∑ x0,t

k

(pJk+1,t

k − p0,tk

) +

K

k=1

(xJk,t

k − x0,tk

)(pJk+1,t

k − p∗,t

k

), (2)

where 

p∗,t

k =

∑ (xj,t

k − xj−1,tk

)pj,t

Jk k

j=1

∑ (xj,t

k − xj−1,tk

)

Jk

j=1

represents a reference price. It is a size-weighted average of trade prices for a given trader and is 

defined only if ∑ (xj,t

k − xj−1,tk

) ≠ 0,

Jk

j=1

i.e., if the closing open interest differs from day t-1 to t. 

Equation (2) represents daily profits as a function of observables and a single unobserved 

variable, p∗,t

k

. Because the j subscript is redundant in (2), we consolidate notation and write

πt

∗ = ∑ xt−1

k ∆pt

k +

K

k=1 ∆xt

k

(pt

k − p∗,tk

), (3)

where ∆pt

k = ptk − pt−1

k

denotes the change in closing price between day t-1 and t for the k

th

expiration and ∆xt

k = xtk − xt−1

k

denotes the change in closing open interest position between 

day t-1 and t. We compute daily trading profits using (3). As proxy for p∗,t

k

, we use the midpoint 

of the high and low prices observed during the day.
14

4.2 Hedging tests

If a Central Bank is hedging an underlying position, then changes in its futures positions 

should be driven by changes in the sensitivity of its cash flow to U.S. interest rates (Faulkender 

2005). This sensitivity is in turn driven by volatility: the more volatile are interest rates, the more 

volatile should a Bank’s cash flows be.

13 In contrast, a Bank that believes it can predict future 

price changes, or follows a momentum or contrarian strategy, will change positions in response 

to price changes. Fishe, Janzen, and Smith (2014) show that speculative traders who disagree on 

the fundamental price will exhibit position changes that are correlated with price changes. 

The key observation here is that price changes should not affect position changes in a pure

futures hedge. This observation suggests a first-order test for hedging behavior. We estimate the 

regression model 

∆Qt

f = α + β∆Pt + γ∆Vt + εt

(4)

where ∆Qt

f

is the change in futures position, ∆Vtis the change in volatility of interest rates on day

t, ∆Ptis the change in the futures price and εtis an i.i.d. error term. In our estimation, we make 

each of these terms into relative changes, e.g., change in futures price relative to the previous

(event time) futures price. The null hypothesis that a Bank is hedging is Ho: β = 0.

Note that if the size of a Bank’s underlying position is correlated with prices, then we may 

reject the null hypothesis even though it is hedging. We explore this possibility in Section 6.2.

 

13 If a Central Bank were following a minimum-variance rule, it would also adjust the hedge when the hedge ratio 

changes -- which may be due to changes in the variance of futures or spot prices or the correlation between cash and 

futures prices. Because spot and futures prices are highly correlated (typically greater than 0.94), position changes in 

our context are more likely due to changes in the variance of futures prices than changes in the correlation.
15

4.3 Co-movement/Synchronization

To investigate co-movement or synchronization, we study the timing of changes in Central 

Banks’ positions. Specifically, we test if contemporaneous changes in Banks’ positions occur 

more than suggested by randomness. Fisher and Konieczny (FK, 2000) and Cavallo (2011) 

suggest such synchronization tests for retail prices. We adapt the FK methodology to examine 

Central Banks’ actions in futures markets. The FK index of synchronization, adapted to position 

changes in a given futures contract, may be written as:

FK = √

∑T (qt−q̅)2

t=1

⁄T

q̅(1−q̅)

=

√sqt

2

√q̅(1−q̅)

(5)

where qtrepresents the proportion of Central Banks that changed their holdings in a given 

futures at time t. The mean of qtis given by q̅ = ∑ qt

T

t=1 ⁄T with sqt

2

representing the sample 

variance defined over T periods.

The intuition here is that if all Central Banks act simultaneously, they all change their 

positions (qt = 1) or none of them change their positions (qt = 0). In that case, qtis a binary 

variable and the sample variance, sqt

2

, equals q̅(1 − q̅). As such, FK equals one in the case of full 

synchronization. A complete lack of synchronization is referred to as a “staggering” of position 

changes. Full staggering is characterized by qt = q̅ ∀t, which implies FK = 0. In other words, if 

Central Banks change positions such that a constant proportion E(q̅) = θ of all Banks change 

their holdings every period, then there is no synchronization, just randomness. 

Further insight into the structural basis of the FK measure is provided by Dias et al. (2005), 

who model a set of participants as one of two types: either fully synchronized or fully nonsynchronized. These authors show that FK is a method-of-moments estimator of the proportion 
16

of synchronized participants. Thus, we can interpret FK to measure the fraction of Central Banks 

acting in a synchronized manner in U.S. futures markets. 

To implement the FK calculation, we examine changes in Central Bank positions on a 

weekly basis. We use a weekly measure because a daily measure could miss some synchronized 

actions due to trading decisions’ arising in different time zones. On a given day, we aggregate 

the same-side positions across expirations, which gives a total long (xit

L

) and total short (xit

S

) for 

bank i at the end of week t and allows us to compute the total net position xit = xit

L − xit

S

.

We develop two directional measures of trading:

bit

L = 1 iff ∆xit > 0; bitL = 0 otherwise, and 

bit

S = 1 iff ∆xit < 0; bitS = 0 otherwise,

where ∆xit ≡ xit − xit−1. These two statistics define binary variables that indicate whether the 

net position change in week t is directed towards long-side or short-side profitability.

Specifically, if a Central Bank increases a long futures position, then that is a profitable decision 

if the futures price subsequently increases. Similarly, if a Central Bank decreases a short futures 

position, that decision is also profitable in terms of opportunity cost provided the futures price 

subsequently increases. Both changes together would result in bit

L = 1 and bit

S = 0 in the data 

for bank i. Because banks remain neutral in some weeks, it is not always the case that bit

L = 1 −

bit

S

. We define these statistics in terms of position changes rather than levels because, if the 

trading of different Central Banks is synchronized, then we would expect their actions to be 

consistent with a specific direction in futures prices, regardless of the their initial holdings. 

We calculate the proportion of Central Banks who changed their holdings (qt) for the two 

directional measures specified above. Specifically, qt

L =

1

mt

∑ bit

mt L

i=1

and qt

S =

1

mt

∑ bit

mt S

i=1

, where 

mt is the count of Banks holding positions in the futures market during week t. From these 
17

measures, we compute long-side (FKL) and short-side (FKS) synchronization indices. This 

approach yields a better statistic if such synchronization is asymmetric, i.e., Banks synchronize 

on one side (e.g., interest rates increasing) and not the other (e.g., interest rates decreasing). 

If Central Banks’ futures position changes are not synchronized, then we would expect 

position changes to appear staggered through time.14 If they appear uniform across Banks, then 

FK is expected to equal zero for either the long-side or short-side direction calculation. The null 

hypothesis consistent with staggering of trade decisions is Ho: E(qt

) = θ, ∀t. Under this null, a 

constant proportion (θ) of Central Banks may randomly change positions each period. Dias et al.

(2005) show that this hypothesis may be tested using a χ

2 goodness-of-fit statistic. The 

appropriate test statistic has the form:

Q = ∑

N(qt−q̅)

2

q̅(1−q̅)

T

t=1 = (NT)FK2

(6)

where, under the null, Q ~ χ(T−1)

2

. Rejecting this null provides additional support for the view 

that at least some Central Banks’ futures trades are synchronized. 

5. CFTC POSITION DATA

We construct a database of end-of-day positions in interest-rate futures contracts. The raw 

data originate from the CFTC’s Large Trader Reporting System, which represents more than 85

percent of the open interest in these interest rate futures markets. The volume that is not covered 

by this dataset is for consistently smaller traders; all large traders are captured by the reporting 

requirements. The CFTC provided data from July 2003 to December 2011.

 

14 Calvo (1983) and Taylor (1980, 1999) develop two macroeconomic models that embed sticky behavior by firms 

that results in staggered price setting. Kiley (2002) offers a comparison of these two models. For our purposes, we 

extend these concepts to sticky trade decisions, which then can result in staggered position changes through time. 
18

5.1 Sample

We use information from the Bank for International Settlements (BIS) to identify alternative 

Central Bank names and the CFTC’s list of “ultimate” position owners to find Central Banks in 

the CFTC data. This procedure identifies 31 Central Banks from around the world holding 

derivatives positions large enough to be reported at some point in our sample period.15

Several sample characteristics are worth noting. First, very few of those Central Banks trade 

options on futures. Instead, most take (outright or spread) positions in futures markets. We 

therefore focus our efforts on futures positions. Second, not all Central Banks are active in all 

futures markets, and not all Banks active in a given market are active in that market at all times. 

More than 10 of the 72 Central Banks in the IMF’s SDDS database whose annual reports never 

mention activities in futures markets have reportable U.S. futures positions for at least part of the 

past decade. Conversely, several of the Central Banks reporting non-zero market values for their 

derivatives positions in the SDDS dataset are not observed in our CFTC sample. This situation 

may arise because the positions held in U.S. exchange-traded contracts are too small for 

reporting, because those positions are managed by an independent portfolio manager or because 

the Central Bank only trades OTC contracts or non-U.S. futures.

Third, the positions held range from just large enough to be reported to substantial. However, 

Table 3 shows that even when Central Bank positions are substantial, they typically account for 

only a small percentage (less than 1% on average) of the overall open interest. Lastly, Central 

Bank positions are concentrated in four interest-rate futures: Eurodollars (17 Central Banks) and 

2-year (23 Central Banks), 5-year (22 Central Banks) and 10-year (22 Central Banks) Treasury 

 

15 Conversations with officials from some smaller Central Banks reveal that their institutions take positions via 

trades through financial intermediaries. Because it is the intermediary that controls the trading in such cases, such 

Central Banks are not in our CFTC dataset. As a result, the number of “31” Central Banks in U.S. interest rate 

futures markets understates the true number of Central Banks that hold positions in U.S. futures markets.
19

Notes. Other interest rate futures are traded by fewer Central Banks (e.g., Treasury Bonds for 

eight Central Banks; 30-day Federal Funds for seven Central Banks) and, in each case, are 

generally less actively traded than these four main contracts. In contrast, a minuscule number of 

Central Banks take large positions in other U.S. futures markets.16 We focus therefore on 

Eurodollars, as well as 2-year, 5-year and 10-year T-Notes futures. 

5.2 Summary statistics

Table 3 provides summary statistics for our sample of Central Banks. We report means and 

medians for end-of-day futures positions and for the change in positions for both long and short 

sides of the market. We also show statistics for the count of expirations, the percentage of time 

remaining in a contract and the percent of open interest relative to total open interest. These data 

are reported for each of the four instruments in our sample. Except for the percent of total open 

interest, mean and median statistics are computed by first calculating the averages and medians 

across days for each participant and then summarizing across participants. Our statistics thus 

reflect a representative bank rather than a representative day and so are not distorted by 

participants that trade more frequently. For the percent of total open interest, the calculation is 

made daily over all banks and the mean and median statistics are computed across days.

Table 3 reveals that Central Banks hold fairly large positions in these contracts. On the high 

side, the nominal value of the average Eurodollar long position is $6.8 billion, and on the low 

side the nominal value of the average short position in 5-year Treasury Notes is $262.9 million. 

 

16 Generally, at most one Central Bank in our sample takes reportable positions in futures contracts on the main 

currencies, commodities (gold, wheat, corn or coffee), or U.S. equity indices. 
20

Similarly, the daily change in positions is meaningful across these contracts with changes in long 

positions tending to be larger than changes in short positions (except for 2-year Notes).

17

 

Expiration counts and the time remaining in a contract suggest that Central Banks typically 

hold the nearby contracts in the Treasury complex. For Eurodollars, the time remaining in a 

contract is fairly low—both mean and median. Expiration counts also suggest that Central Banks 

hold spread or butterfly Eurodollar futures positions. 

Although Bank positions are monetarily significant, on average they are not meaningful 

given the size of these markets. Thus, the purpose behind such positions is likely not to influence 

U.S. interest rates. In effect, the small size of these holdings relative to the market as a whole 

suggests that participation in these markets is likely driven by an internal calculation based on 

how policy decisions may affect a Banks’ overall balance sheet or by portfolio management 

considerations for foreign reserve assets.

6. ANALYSIS

This section presents the results of the tests developed in Section 4. We investigate the 

profitability of Central Banks’ positions and trading (6.1), their purposes for using interest-rate 

futures (6.2) and the possible synchronization of their trading activities (6.3). 

6.1 Central Bank profits from holding futures contracts

Table 4 shows the estimated daily average profits from Central Bank positions and net 

trading summarized by futures contract and across all contracts. The amounts shown are profits 

for long and short positions combined. Overall, Central Banks lost money on their futures market 

 

17 Daily position changes do not correspond to trade sizes because participants may make many trades on both sides 

on the market during the day. The position changes reported here constitute the end-of-day changes in open interest.
21

positions. For Eurodollars and 2-year Treasury notes, losses occurred on average both during and 

outside the recession of 2007-09. However, their profitability in 5-year and 10-year notes

differed between the recession and non-recession periods. 

For the sub-sample of Euro-linked Central Banks, we find consistent overall losses for the 

period excluding the recession of 2007-09. During the recession, those Banks show positive 

average daily profits on their Treasury Notes positions, particular 5-year notes. This period 

witnessed declining interest rates, so holding larger long positions would generate this result. 

As to the hedging motive, the overall profit column supports the statements of Central Banks 

in their annual reports. Specifically, no Bank would persist in holding or taking positions for 

losses in these markets if there was no material offset somewhere on its balance sheet. However, 

some contracts—5-year and 10-year Notes—and the group of Euro-linked Banks may reveal a 

different motive. For these contracts and Banks, substantial profits are found during various 

periods. Thus, a speculative motive may also be at work for selected Central Banks.

6.2 Dynamic hedging tests

The results in Table 4 are indicative of Central Bank profits and motives but do not involve a 

statistical test for hedging. Next, we apply the hedging test described in Section 4.2. 

Table 5 shows hedging test results for the entire sample period by commodity. Observations 

are for each Central Bank over time, so we use a pooled cross-section time-series model with a 

fixed parameter structure. For each bank, we only include daily observations for which the net 

position change was nonzero and there is no weighing by the size of a Bank’s position. The 

dependent variable is the ratio of the change in net long positions (long minus short) divided by 

the total of long and short positions. Price changes are measured using close-to-close prices 

between the included observations.
22

We compute the variance of futures prices using the prices of options on futures. We 

calculate option-implied volatilities using the formula that the Chicago Mercantile Exchange 

(CME) uses for its VIX calculation, which is in standard deviation units. For each trading day we 

use the nearest-to-maturity option with more than one month to expiration (e.g., for the October 

expiration in Treasury bonds, we use the December expiration options contract), and we omit 

any option contracts with zero volume on the relevant trading day. We conduct robustness 

checks of our hedging tests using an implied volatility series from the Commodity Research 

Bureau, which is based on Black’s formula and the two nearest-to-the-money puts and calls.18

The lower (DW-lower) and upper (DW-upper) Durbin-Watson p-values are shown for an AR(1) 

model at the bottom of the table. The results in Table 5 support the view that Central Banks use

futures markets for hedging purposes, because the coefficient on the price change tends to be 

statistically insignificant. The exception is the 10-year Note, which exhibits a significant positive 

coefficient on the price change variable.

In Table 6, we re-estimate our model by partitioning the sample into before, during, and after 

the Great Recession period. These three sub-periods are the “Pre-Crisis,” defined as July 2003 to 

November 2007; “Crisis,” defined as December 2007 through June 2009, i.e., as the period 

during which the United States was in a recession as identified by the National Bureau of 

Economic Research; and “Post-Crisis,” defined as July 2009 to December 2011. 

Panel A in Table 6 shows that this partitioning of the sample has meaningful effects on these 

hedging tests. For every commodity, the relative price change variable is statistically significant 

during the crisis period and insignificant during the pre-crisis period. The positive sign indicates 

 

18 The Commodity Research Bureau does not cover our entire sample period. Still, our results are robust to using 

this alternative measure in that, for the overlapping period, our results are substantially the same for both series. 

Hence, we report our findings using the VIX calculation. We confirm the stationarity of these relative-change 

variables using the adjusted Dickey-Fuller test and the Kwiatkowski, Phillips, Schmidt, and Shin (KPSS) test for the 

full sample and each sub-sample.
23

that Central Banks appear to use a momentum strategy; that is, they increase their net long 

positions when prices are increasing. 

As an alternative to the momentum interpretation of these results, the findings shown in 

Table 6 (Panel A) could be consistent with a hedging story if there were repeated, unexpected

changes in interest rates. Suppose, for example, that during the crisis, Central Banks want to 

hedge the income stream on their short-term, dollar-denominated assets. As interest rates drop, 

Central Bank income drops. In order to protect against further decreases in income, Central Bank 

managers who had hedged only part of their exposure might increase their net long positions in 

interest rate futures. This story, however, requires that unexpected interest-based losses 

contemporaneously increase the incentive to hedge against further losses. The findings of Scalia 

and Sahel (2012), though, suggest that foreign reserve managers (like most asset managers) tend 

to respond to losses by increasing their exposure to risk.

Another possible story is that, as long-term interest rates dropped amid the financial crisis, 

the fear of possible capital losses in the event that rates rebounded might have led reserve 

managers to increase the hedge. Because T-Note futures prices and interest rates are inversely 

related, however, we would expect the signs of the regression coefficients to be the opposite of 

those in Table 6 (Panel A). A third possibility is linked to the flow of dollar-denominated assets 

onto Central Banks’ balance sheets. If foreign reserves’ growth is inversely related to the level of 

U.S. interest rates and unexpected flows arise, then hedging positions may change, which creates 

a correlation with price changes. 

Although the coefficients in Panel A may admit a hedging strategy, such an explanation

requires a sequence of unexpected price changes. The post-crisis period results in Panel A 

question these stories. The post-crisis coefficients confirm the significant positive relationship 
24

between positions and relative price changes for all commodities except 2-year notes. For 

Eurodollars in particular, the relative price change coefficient indicates that these effects 

increased by an order of magnitude. A hedging explanation may still be viable, but it is more 

difficult to believe that balance sheet changes were unexpected at this point. Given Central 

Banks’ access to information during the crisis and afterwards, these post-crisis significant effects 

suggest that informed, strategic trading may be a better explanation for our findings.

Euro-linked Central Banks make up approximately one-third of our sample and constitute a 

reasonably homogeneous sub-group. We therefore re-estimated the hedging test for that subgroup of Banks. These results are shown in Panel B in Table 6. The results generally confirm the 

full sample findings, except that now the pre-crisis coefficient on the relative price change 

variable is significant for Eurodollars, 2-year and 10-year Notes, suggesting a possible nonhedging motive in certain contracts prior to the crisis for these Banks. Combined with the 

previous observations for Panel A, these findings lean towards a speculative motive for futures 

positions, possibly because of information relevant to particular contracts.

To better understand the idiosyncratic features of these different Central Banks, we reestimate the hedging-test model on each Bank separately. Because we are using daily frequency 

data, a few Banks drop out of our sample as they do not have enough variation for reliable 

estimation. The final sample contains 28 Central Banks. We report the sign of the relative price 

change variable and its p-value in Table 7. The R2range and the count of significant (5% level) 

coefficients for each commodity are shown at the bottom of this table.

The significance counts at the bottom of Table 7 indicate that our findings are too frequent to 

be generated by chance. Thus, we are statistically confident that many of these Central Banks are 

adjusting futures positions coincident with price changes, which is not standard if they have 
25

adopted an effective hedging strategy. Importantly, the inconsistency in the sign of the 

coefficient on the relative price change variable suggests either quite different hedging 

instruments (assets versus liabilities) or selective use of information. Because some Central 

Banks show futures profits, the selective use of information motive cannot be readily dismissed.

Overall, these tests suggest that hedging is unlikely to be the sole purpose for Central Bank 

positions in U.S. futures markets.

6.3 Rolling Measure of Synchronization

We compute the FK synchronization measure for a one-year moving window starting in 

2004. We roll this calculation forward using one week increments to the end of the sample. 

Figure 2 shows the pattern of synchronization for the long- and short-side versions of the FK

measure. It shows some synchronization of position changes, particularly for long side holdings, 

but the degree of participation is at most around 50%.19

The plot makes it clear that after mid-2006, there was a decline in synchronization on the 

short-side with a peak of 55% reached for the period ending July 2006 and a trough reached for 

the period ending October 2010 (22%). Rapid declines are observed from periods ending July 

2006 to November 2006 (44%) and for April 2007 (49%) to July 2007 (39%), while fairly steady 

synchronization arises between the periods ending August 2005 to July 2006 and July 2007 to 

October 2008, with the latter being at a reduced participation rate. The evidence here suggests 

 

19 In the FK calculation, T is fixed but the number of Central Banks with positions may vary somewhat within a 

given year. To investigate any biases that arise because of this variation, we (i) exclude observations where there are 

less than five Banks in a given week; (ii) evaluate the FK calculation using only observations with an equal number 

of Banks and (iii) use the minimum, median and average number of participating Banks to compute the chi-squared 

test of staggered changes in positions. All of these robustness checks lead to the same general observations about 

the synchronization of Banks’ net trading decisions.
26

that participation on the short-side decreased during the 2007-09 Recession (which, for this 

rolling forward calculation, is for the period ending December 2008 to June 2010). 

In contrast, the long-side measure shows greater fluctuation in synchronization than the 

short-side measure. There appears to be fairly high synchronization (>50%) between the period 

ending July 2006 to February 2007. In addition, sustained synchronization arises at a somewhat 

lower level (~45%) during the period ending December 2008 to January 2010, which overlaps 

the 2007-09 Recession and continues six months beyond its official end date.

Because of the limited number of Banks in our global sample, we cannot systematically 

isolate each region to analyze if Banks in that region are more synchronized than the global 

sample. An exception, however, are Central Banks whose currencies are linked to the Euro. This 

group of Banks’ participation in these futures contracts leads to a sufficiently large sample to use 

our methods while preserving trader confidentiality (n=10). 

Figure 3 shows the rolling calculation of the FK synchronization measure based on a sample 

of Euro-related Banks. To have sufficient size, this sample begins in October 2006. A noticeably 

different level of participation is observed for Euro-linked Banks for the entire period and during 

the 2007-09 Recession. At the beginning of the 2007-09 Recession, about 75% of Euro-linked 

Banks synchronized long-side net position changes and about 65% synchronized short-side net 

position changes. These rates increased steadily during the 2007-09 Recession, reaching a peak 

of 92% long-side participation and 87% short-side participation in September 2009 (which 

effectively covers the second half of the Great Recession).

6.4 Staggered Position Changes

The patterns appearing in Figures 2 and 3 shows higher levels of synchronization during the 

2007-09 Recession for Europe-linked Banks than are found in our global sample of Central 
27

Banks. To weigh this evidence, we examine whether we can reject the staggered-price 

hypothesis for these data. Figures 4 and 5 provide a plot of the one-tail p-values for this chisquare goodness-of-fit test. Figure 4 shows all Central Banks and Figure 5 is for the sample 

using only Euro-linked Banks. The p-values are shown for each annual sample rolling forward 

weekly, identical to the sample definition used to calculate the FK measure.

Figure 4 shows that the long-side synchronization observations from Figure 2 are generally 

supported. The two periods with relatively high levels of long-side participation by Central 

Banks correspond to periods during which we can reject the hypothesis of staggered position 

changes arising at a constant rate. The short-side results in Figure 4 suggest that while there is a 

prolonged period of relatively high synchronization near the beginning of our sample, we cannot 

reject the position change staggering hypothesis – which lowers the weight that we place of the 

implications of the observed FK measure. Although there are brief periods of significance for the 

short-side measure of position change staggering, they do present a picture to support the view 

that globally, foreign reserve managers within Central Banks react similarly in an increasinginterest rate environment. 

In contrast, Figure 5 offers consistent support for the view that Europe-linked Banks’ longside net position changes were synchronized during the 2007-09 recession and (for a limited 

period) that short-side changes were, too. Figure 5 shows a fairly sustained period (April/May 

2009 to July 2010) in which we can reject the position change staggering hypothesis on the long

side. During this interval of time, the short side also provides support for synchronization of net 

trade decisions (period ending November 2009 to June 2010).
28

7. CONCLUSIONS

 We provide the first position-level evidence on derivative use by Central Banks in financial 

markets where there is no a priori reason to believe that their goal is to influence asset prices. 

We exploit a unique, comprehensive, non-public dataset of individual traders’ daily positions in 

U.S. interest-rate futures markets between 2003 and 2011 to test the rationale for such positions 

provided from limited public data – mostly the information contained in their annual reports. 

On average, the actual trading behavior of the 31 Central Banks in our sample seems

consistent with the hedging purposes mentioned by the vast majority of those institutions. 

However, an analysis using sub-samples (around the Great Recession and by country group) 

provides evidence of non-hedging motives for Central Bank derivatives holdings. During and 

after the 2007-09 financial crisis, Central Banks (especially Euro-linked institutions) held, and 

profited from, directional positions in 5- and 10-year T-Note futures, which is indicative of a 

non-hedging strategy. We also find evidence that amid the 2007-09 Great Recession and 

financial crisis, foreign reserve managers from a number of Central Banks reacted in a 

synchronized manner to the crisis.
29

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Effects of Crises and Globalisation on International Reserves,” Journal of International Money and 

Finance, 33, 208–234. 

Stulz, René M., 1996, “Rethinking Risk Management,” Journal of Applied Corporate Finance 9, pp. 8–

24. 

Taylor, John B., 1980, “Aggregate Dynamics and Staggered Contracts,” Journal of Political Economy

88(1), 1–23.

______, 1999, “Staggered Price and Wage Setting in Macroeconomics,” in: J.B. Taylor and M. 

Woodford, Eds., Handbook of Macroeconomics, Vol. 1 (North-Holland, Amsterdam) 1009–1050.
No 

Derivatives

CB Holds 

Derivatives Hedging Speculation Hedging Speculation

2005 67 3 46 18 17 2 20 2

2006 68 3 47 18 16 1 22 1

2007 69 2 48 19 17 1 21 2

2008 69 2 50 17 16 2 23 2

2009 70 3 55 12 17 1 24 3

2010 70 1 55 14 17 2 25 2

Instrument Purpose Instrument Purpose Amounts Instrument Purpose Amounts

2005 3 1 30 18 19 44 22 33

2006 3 1 30 17 20 45 27 33

2007 1 1 31 19 22 46 26 36

2008 3 1 28 18 20 51 37 38

2009 1 1 31 19 22 53 36 39

2010 2 1 30 18 22 51 33 36

Annual Report Provides 

Information Annual 

Report is 

Silent

This table summarizes information contained in the annual reports published by Central Banks from 2005 to 2010 regarding

derivatives activities. The sample comprises those Central Banks reporting financial information to the International

Monetary Fund (IMF) for public dissemination as part of the Fund’s online SDDS database and two major Central Banks

not included in that database. We exclude Central Banks whose annual reports could not be obtained in English. Panel A

shows the sample size, the count of Banks the report derivative holdings or no holdings, the number of Banks providing no

derivatives information, and the reported motives for derivatives positions if available. Panel B uses the Central Banks that

report derivative holdings to show the types derivatives they trade. The first two columns focus on the three Central Banks

that report using derivatives without specifying the contract markets in which they hold positions. The next six columns

shows the kind of information provided by these reports for interest rate and foreign currency derivatives. 

Derivative Use from Central Banks’ Annual Reports

Table 1

Motives for trading...Interest 

Rate Derivatives

Motives for trading...Foreign 

Exchange Derivatives

Annual 

ReportYear Sample Size

Panel A: Overview

Panel B: Underlying Instruments

Annual 

ReportYear

Unspecified Underlying 

Asset(s)...mentions Mentions Interest Rate Derivatives... Mentions Foreign Exchange Derivatives...
Country Usage Amounts

Interest

Rate

Foreign

Exchange

Interest

Rate

Foreign

Exchange

Austria Yes Yes SW SW, FW L

Belgium Yes Yes FT SW, FW H L

Cyprus Yes Yes FW, SW H

Denmark Yes Yes SW FW, SW, FT H, L

Estonia Yes Yes SW, FT FW, SW H H

European Central Bank Yes Yes FT, SW SW, FW H H, L

Finland Yes Yes SW FT, FW, SW

France Yes Yes FT, SW FW, OP, SW C H, L

Germany (a) No

Greece Yes No FW, SW L

Ireland Yes Yes FW

Italy Yes Yes FT FW, SW

Latvia Yes Yes FT FW, SW, FT H H

Lithuania Yes Yes FT FW, SW H H

Luxembourg Yes Yes FT H

Malta Yes Yes FT FW, SW H H, L

Netherlands Yes Yes SW FW, SW L H, L

Portugal Yes Yes FT, SW FW, SW H H

Slovakia Yes Yes FT SW

Slovenia Yes Yes SW L

Spain Yes Yes FT FW, SW L

Australia Yes Yes FT SW H L, H

Canada No

Czech Republic Yes Yes FT, SW FW, SW L

Hungary Yes Yes SW, FT OP, SW H

Iceland Yes Yes FW, SW

Israel Yes Yes FT SW, OP, FT, FW

Japan Yes No SW L

Korea No

Mexico No

New Zeland Yes Yes FT, SW FW, SW S, H H, L

Norway Yes Yes FT, SW SW, FT H, L H, L

Singapore (a) No L

Sweden Yes Yes FW, SW

Switzerland Yes Yes FT, SW, FW FW, OP, SW H H, S, L

United Kingdom Yes Yes SW, Bond FT SW, FW H H, L

Panel A: Euro-Related Countries

Panel B: Other OECD and Advanced Economies

Table 2

Derivatives Held by Central Banks, Use and Purpose by Country in 2009

This table reports information about the usage of derivative contracts based on annual reports in 2009 by 70

Central banks in the Euro-related countries, other OECD member and advanced countries, and countries in

emerging markets. Note that Chile and Estonia did not become members of the OECD until 2010, and hence

are not listed among OECD countries. Israel and Singapore, though not members of the OECD in 2009, are

nevertheless listed among other "advanced economies" as per the MSCI listings for that year. The first

column shows whether a report provides any information about whether a Central Bank uses derivatives

(“Yes”), does not use them ("No"), or provides no information (“None”). For the 55 Central Banks that report

using derivatives, the second column shows whether the report provides information about the amounts

involved (either notional or fair values). For both interest rate and foreign exchange derivatives, the next four

columns show whether the report states that it uses forwards (FW), futures (FT), swaps (SW), or options

(OP), and whether its purposes are for hedging (H), liquidity (L), or speculation (S). The (a) entries mean that

derivatives are referenced in general terms but there is no affirmative statement of their use.

Report Mentions Derivative Instrument(s) Mentioned Purpose(s) Stated
Country Usage Amounts

Interest

Rate

Foreign

Exchange

Interest

Rate

Foreign

Exchange

Armenia Yes Yes SW FT

Belarus Yes Yes FW, SW

Brazil Yes Yes FT, SW FW, SW H, L, S

Bulgaria Yes Yes FT FW

Chile Yes Yes SW, FW H, L

China No

Croatia None 0

Eastern Caribbean Yes Yes FW H

Egypt No

Georgia Yes Yes FW

India Yes Yes FW, SW L

Indonesia Yes No SW, Other Derivatives L, H

Jordan None 0

Kazakhstan No

Kuwait No

Kyrgyz None 0

Malaysia Yes No SW L

Moldova No

Morocco Yes Yes SW

Pakistan Yes Yes FW, SW, FT H

Peru Yes Yes FW, SW L

Philippines Yes Yes L

Poland Yes Yes FW SW, FW

Romania Yes No FW, SW

Russia Yes Yes FW, SW L

Saudi Arabia No

Seychelles No

South Africa Yes Yes FW

Taiwan No

Thailand Yes Yes FT SW, FW H, S L, H

Trinidad No

Tunisia Yes Yes SW, FW

Turkey Yes No FW, SW H H

Ukraine Yes Yes FT, SW H, L

Table 2 (continued)

Derivatives Held by Central Banks, Use and Purpose by Country in 2009

Report Mentions Derivative Instrument(s) Mentioned Purpose(s) Stated

Panel C: Emerging Markets
Variable Eurodollars Two-Year Five-Year Ten-Year

Panel A: Means

Futures Long Positions 6,851 2,573 2,962 3,049

Futures Short Positions 4,366 4,769 2,629 2,755

Net Change in Long Positions 1,171 1,705 2,514 2,395

Net Change in Short Positions 710 2,740 1,742 1,386

Expiration Count 4.06 1.02 1.02 1.04

Time Remaining in Contract 12.1% 44.7% 37.6% 29.8%

Percent of Total Open Interest 0.40% 0.70% 1.10% 0.70%

Panel B: Medians

Futures Long Positions 3,725 2,454 2,000 2,313

Futures Short Positions 2,498 1,626 1,450 2,125

Net Change in Long Positions 321 508 650 786

Net Change in Short Positions 192 640 471 500

Expiration Count 2.00 1.00 1.00 1.00

Time Remaining in Contract 10.5% 43.9% 36.5% 28.7%

Percent of Total Open Interest 0.25% 0.49% 0.77% 0.39%

Table 3

Summary Statistics for Central Banks' Futures Positions

Summary statistics are shown for end-of-day futures positions and the change in positions

by long and short sides, the count of expirations, the percentage of time remaining in a

contract, and the percent of open interest relative to total open interest for Eurodollars, TwoYear, Five-Year and Ten-Year Treasury Note contracts. Except for the percent of total open

interest, these statistics are computed by first calculating the average and medians across

days for a given participant and are then summarized across participants to reduce skewness

biases created by participants with higher participation rates and open interest levels. For the

percent of total open interest, the calculation is made daily, and the mean and median are

computed across days in the sample.

Treasury Note Futures
Sample Coverage Overall Eurodollars Two-Year Five-Year Ten-Year

All Central Banks

All Periods $ (12,033) $ (8,772) $ (83,828) $ 24,714 $ 39,184

2007-09 Recession $ (17,335) $ (49,288) $ (62,040) $ (75,051) $ 208,398

Excl. 2007-09 Recession $ (10,809) $ (2,005) $ (92,092) $ 49,214 $ (1,896)

Euro-related Central Banks

All Periods $ (16,964) $ (13,698) $ (32,565) $ 27,422 $ (45,786)

2007-09 Recession $ 20,020 n.a. $ 1,140 $ 174,698 $ 4,039

Excl. 2007-09 Recession $ (20,471) $ (13,698) $ (45,854) $ 12,711 $ (50,500)

Position and Net Trading Profits

This table reports the average daily position and net trading profits for the sample of all Central banks by

period and futures instrument. Profits for the sub-sample of Euro-related Central banks are shown

separately. This sub-sample includes some but not all of the Euro-related banks shown in Table 3. Net

trading profits during a given day use the midpoint of the high and low price as the reference trade price

in Equation (2) in the text. Profits combine both long and short positions across all expirations with

holdings on a given day. The 2007-09 Recession is defined using the NBER dating calendar and

represents the period December 2007 to June 2009. 

Treasury Note Futures

Table 4
Variables Eurodollars Two Year Five Year Ten Year

Intercept 1.444 1.082 0.597 0.761

0.047 0.048 0.120 0.025

Relative Price Change 80.96 -1.56 1.30 97.65

0.770 0.982 0.974 0.008

Relative Change in VIX -4.572 0.019 0.184 -7.577

0.118 0.975 0.844 0.010

Sample Size 1,330 3,142 2,240 3,036

R-Squared 0.2% 0.1% 0.1% 0.4%

DW-lower 0.585 0.558 0.552 0.533

DW-upper 0.415 0.442 0.448 0.468

Treasury Note Futures

We test for evidence of hedging using the sample of central banks from August 2003 to December

2011. Results are provided for position changes in four futures markets: Eurodollars and Two-,

Five-, and Ten-year treasury note futures. These effects are measured using trade frequency data

defined for each bank individually. That is, on a given day, positions are summed across all

expirations for each central bank. Days are then ordered in sequence and an observation is retained

in the sample if it shows a position change from the previous day. A model is estimated for each

commodity. The dependent variable is the ratio of the change in net long positions (long minus

short) divided by the total of long and short positions. Price changes are measured using close-toclose prices between the included observation days, the VIX index is computed using options on

futures in each commodity market following the procedures used to compute the CME VIX. The

lower (DW-lower) and upper (DW-upper) Durbin-Watson p-values are shown for an AR(1) model

at the bottom of the table. The p-values for the coefficients are shown in italics below each

coefficient estimate. 

Table 5

Central Bank Hedging Behavior
Variables Pre-Crisis Crisis* Post-Crisis Pre-Crisis Crisis Post-Crisis Pre-Crisis Crisis Post-Crisis Pre-Crisis Crisis Post-Crisis

Intercept 2.711 1.242 0.058 1.775 0.104 1.205 0.912 0.379 0.087 0.741 1.967 0.146

0.050 0.404 0.018 0.184 0.044 0.141 0.274 0.368 0.017 0.002 0.247 0.029

Relative Price Change 222.09 33.09 115.37 95.38 92.39 -14.64 -168.38 190.14 7.73 0.69 373.67 49.94

0.716 0.037 0.000 0.816 0.000 0.823 0.167 0.000 0.006 0.983 0.028 0.000

Relative Change in VIX -7.496 0.466 -0.109 -0.776 0.038 0.687 1.329 0.231 -0.047 -4.230 -22.870 -0.641

0.141 0.177 0.317 0.699 0.351 0.535 0.661 0.834 0.468 0.047 0.058 0.315

Sample Size 700 76 553 1,092 938 1,112 1,000 506 734 1,446 570 1,020

R-Squared 0.3% 44.9% 24.1% 0.0% 7.1% 0.0% 0.2% 3.3% 1.1% 0.3% 1.3% 6.2%

DW-lower 0.593 0.726 0.460 0.532 0.774 0.561 0.545 0.394 0.921 0.711 0.492 0.730

DW-upper 0.407 0.274 0.540 0.467 0.226 0.439 0.455 0.606 0.079 0.290 0.508 0.270

Panel A: All Central Banks

Table 6

Central Bank Hedging Behavior Before, During, and After the Financial Crisis

Ten-Yr T-Notes

We test for evidence of hedging using the sample of Central Banks in the futures markets before, during, and after the financial crisis of 2007-09. Panel A shows results for all Central Banks

combined and Panel B shows results for only Euro-related Central Banks. The analysis is divided into three sub-periods: "Pre-Crisis" defined as July 2003 to November 2007; "Crisis"

defined as December 2007 through June 2009, i.e., as the period during which the United States were in a recession as identified by the National Bureau of Economic Research; and "PostCrisis" defined as July 2009 to December 2011. Results are provided for position changes in four futures markets: Eurodollars; Two-, Five-, and Ten-year U.S. Treasury Notes. The effects

are measured using trade frequency data defined for each bank individually. That is, on a given day, positions are summed across all expirations for each CB. Days are then ordered in

sequence, and an observation is retained in the sample if it shows a position change from the previous day. A model is estimated for each commodity. The dependent variable is the ratio of

the change in net long positions (long minus short) divided by the total of long and short positions. Price changes are measured using close-to-close prices between the included observation

days. The VIX index is computed using options on futures in each commodity market following the procedures used to compute the CME VIX. The lower (DW-lower) and upper (DWupper) Durbin-Watson p-values are shown for an AR(1) model at the bottom of the table. Regressions marked with an asterisk ("*") are estimated after correcting for an AR(1) structure.

The p-values for the coefficients are shown in italics below each coefficient estimate. 

Eurodollars Two-Yr T-Notes Five-Yr T-Notes
Variables Pre-Crisis Crisis* Post-Crisis* Pre-Crisis Crisis* Post-Crisis* Pre-Crisis Crisis Post-Crisis* Pre-Crisis Crisis Post-Crisis

Intercept 0.494 -0.016 0.039 0.140 0.071 0.153 1.476 0.051 0.163 0.666 0.253 0.080

0.153 0.718 0.119 0.081 0.182 0.000 0.309 0.158 0.037 0.016 0.160 0.516

Relative Price Change -473.00 45.81 146.04 -241.61 158.81 3.87 -231.05 -5.54 0.13 121.58 11.21 142.01

0.002 0.002 0.000 0.000 0.000 0.264 0.294 0.051 0.984 0.000 0.480 0.000

Relative Change in VIX -2.314 0.300 -0.273 0.133 -0.044 -0.052 2.822 0.039 -0.085 3.007 0.575 -1.152

0.095 0.192 0.039 0.237 0.341 0.420 0.668 0.738 0.568 0.232 0.659 0.250

Sample Size 549 60 437 601 470 668 575 132 261 715 193 431

R-squared 2.3% 15.8% 38.6% 10.5% 28.5% 2.1% 0.2% 2.9% 1.1% 1.9% 0.5% 22.3%

DW-lower 0.530 0.050 0.001 0.780 0.001 0.432 0.547 0.881 0.543 0.647 0.798 0.611

DW-upper 0.470 0.995 0.998 0.221 0.999 0.568 0.453 0.120 0.456 0.353 0.202 0.389

Table 6 (continued)

Central Bank Hedging Behavior Before, During, and After the Financial Crisis

Eurodollars Two-Yr T-Notes Five-Yr T-Notes Ten-Yr T-Notes

Panel B: Euro-related Central Banks
Central Bank

Relative 

Price 

Change p-value

Relative 

Price 

Change p-value

Relative 

Price 

Change p-value

Relative 

Price 

Change p-value

CB #1 pos 0.501 pos 0.008 pos 0.101

CB #2 pos 0.001 neg 0.921 pos 0.776

CB #3 pos 0.001 neg 0.555 neg 0.521 neg 0.009

CB #4 pos 0.036 neg 0.704 neg 0.580

CB #5 pos 0.103 pos 0.007 neg 0.796 pos 0.013

CB #6 neg 0.060 neg 0.044

CB #7 pos 0.018 pos 0.130

CB #8 neg 0.001 pos 0.361 pos 0.445

CB #9 neg 0.001

CB #10 pos 0.832 neg 0.363 neg 0.001 neg 0.029

CB #11 neg 0.001 neg 0.001 neg 0.166 pos 0.001

CB #12 pos 0.001 pos 0.542 pos 0.597 pos 0.001

CB #13 pos 0.367 pos 0.547

CB #14 pos 0.198 pos 0.248 pos 0.001

CB #15 neg 0.001 neg 0.849 neg 0.442 pos 0.069

CB #16 neg 0.418 neg 0.738

CB #17 neg 0.024 neg 0.131 neg 0.613

CB #18 neg 0.001 pos 0.001 neg 0.046

CB #19 neg 0.260 pos 0.057 neg 0.001 neg 0.967

CB #20 pos 0.378

CB #21 pos 0.501 neg 0.216 pos 0.001 pos 0.102

CB #22 pos 0.903

CB #23 pos 0.001 pos 0.461

CB #24 neg 0.089 pos 0.686 pos 0.767

CB #25 neg 0.363

CB #26 pos 0.093

CB #27 pos 0.775 pos 0.961

CB #28 neg 0.424

Significant @ 5%

R-Squared range

6 / 13 8 / 24 6 / 20 7 / 17

1.4% - 91.5% 0.1% - 92.1% 0.1% - 60.4% 0.3% - 89.9%

Table 7

Individual Central Bank Hedging Decisions

We refine the test for hedging by estimating results for each Central Bank separately. The specification and

estimation approach are the same as Table 5. We report the sign of the price change variable and its p-value. The

dependent variable is the ratio of the change in the net long positions (long minus short) divided by the total of

long and short positions and each regression includes the relative price change variable and the relative change

in price volatility as measured by the VIX. The R-squared range and the count of significant (5% level)

coefficients for each commodity out of all tested banks are shown at the bottom of the table.

Eurodollars 2-Yr Notes 5-Yr Notes 10-Yr Notes
Central Banks Reporting Information to IMF-SDSS, 2000 to 2011

Figure 1. The top line plots the number of foreign Central Banks that voluntarily report 

foreign reserves information for monthly publication by the International Monetary 

Fund’s (IMF) Special Data Dissemination Standard (SDDS) database. The middle curve 

(solid line) displays how many of those Banks that include some information on their 

derivatives use. The bottom curve (dashed line) shows that less than a third of the total 

report non-zero derivatives positions. (Source: IMF).

0

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 0 Count (FCB voluntarily reporting foreign reserve data to SDDS)

Count (FCB mentioning derivatives positions in IMF's SDDS)

Count (FCB reporting non-zero derivatives mkt values in IMF's SDDS)
Figure 2. The FK measure of synchronization is shown for long- and short-side net trading 

decisions using all Central Banks with positions in 2-, 5- and 10-year Treasury Notes and 90-

day Eurodollar futures contracts. The annual calculation begins in 2004 and rolls forward 

weekly until the end of 2010. The date axis shows the period ending for each calculation. 

Calculations using data during the 2007-09 Recession (Dec. 2007 to June 2009) are then 

defined by the period ending December 2008 to June 2010.

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 Aug-10 Feb-11 Sep-11

Ending Period

Long and Short Synchronization Measure for Central Banks

One-Year Sample Rolling Forward Weekly, 2004-2010

FK Long FK Short
Figure 3. The FK measure of synchronization is shown for long- and short-side net trading 

decisions using only Euro-related Central Banks with positions in 2-, 5- and 10-year Treasury 

Notes and 90-day Eurodollar futures contracts. Because of limitations in Bank participation, the 

calculation of the FK measure begins in October 2006 and rolls forward weekly until the end of 

2010. The date axis shows the period ending for each calculation. Calculations using data 

during the 2007-09 Recession (Dec. 2007 to June 2009) are then defined by the period ending 

December 2008 to June 2010.

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Jun-07 Oct-07 Feb-08 Jun-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11

Ending Period

Synchronization Measures for Euro-Related Banks

One-Year Sample Rolling Forward Weekly, 2006:Q4 to 2010

FK Long FK Short
Figure 4. The p-value of the Q statistic is shown for long- and short-side net trading decisions 

using all Central Banks with positions in 2-, 5- and 10-year Treasury Notes and 90-day 

Eurodollar futures contracts. The date axis shows the period ending for each calculation. 

Calculations using data during the 2007-09 Recession (Dec. 2007 to June 2009) are then 

defined for the period ending December 2008 to June 2010.

000

000

000

000

000

001

001

001

001

001

001

Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 Aug-10 Feb-11 Sep-11

Ending Period

One-Tail Significance Test for Staggered Trades - All Banks

One-Year Sample Rolling Forward Weekly, 2004-2010

Sig - Long Sig - Short
Figure 5. The p-value of the Q statistic is shown for long- and short-side net trading decisions 

using Euro-related Banks with positions in 2-, 5- and 10-year Treasury Notes and 90-day 

Eurodollar futures contracts. The date axis shows the period ending for each calculation. 

Calculations using data during the 2007-09 Recession (Dec. 2007 to June 2009) are then 

defined for the period ending December 2008 to June 2010.

000

000

000

000

000

001

001

001

001

001

001

Jun-07 Oct-07 Feb-08 Jun-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11

Ending Period

One-Tail Significance for Staggered Trades by Euro Banks

One-Year Sample Rolling Forward Weekly, 2006:Q4 to 2010

Sig - Long Sig - Short