In an effort to strengthen the resilience of the largest bond market in the world, US officials are taking a new step to improve the level of public reporting of Treasuries transaction data.
Nellie Liang, the top domestic finance officer for the Treasury Department, made her remarks at the annual conference on the Treasuries market in New York on Wednesday. They are proposing to provide transaction-level transparency to the public, in a gradual and in a calibrated approach, she said. She remarked, they will walk, not run, without indicating when the new trading data will start to be made available.
The decision was made following months of consideration and consultation with market participants. She stated that responses to the Treasury’s outreach program on the topic of disclosing more information on trading demonstrated that more transparency may boost investor trust.
Regarding the results of the Treasury’s outreach, Liang stated, Investors could feel more assured by viewing accomplished transactions rather than indicative prices and may be more likely to remain engaged in the market. Furthermore, she said that they demonstrated how increased transaction openness may encourage better price discovery and hence boost the supply of liquidity.
The Treasury is currently recommending that transaction data for nominal on-the-run Treasuries, the most traded and benchmark assets, be released at the end of each day, with some restrictions based on trading size to be determined later.
Area of Plan
Through Trace, its price-reporting system for bonds, the Financial Industry Regulatory Authority is the organization that collects the Treasury trade information.
In her remarks at the conference held at the Federal Reserve Bank of New York, Liang stated that price data for benchmark, on-the-run assets “are the fundamental reference point across financial markets.” According to her, on-the-run transactions make up almost 80% of the nominal volume of Treasury trading.
In line with the feedback that “transparency for these securities would have larger benefits than costs,” Liang stated, “providing extra transparency for the on-the-runs would be consistent.”
As with other fixed-income markets, she continued, information on significant trades “should be provided judiciously, with the actual amount of the trade concealed at the point of distribution.” Although the precise “limit sizes” have yet to be decided, she predicted that they would likely be tier-based according to the interest-rate risk profile.
There are still some things to iron out, and Liang said, referring to the Inter-Agency Working Group on Treasury Market Surveillance, a group of US regulators, They look forward to additional engagement with IAWG members and market players in coming months.
Some believe that more disclosure of trading activity in the $23.7 trillion Treasury market will promote additional market making by fostering a better knowledge of market dynamics and possibilities. Daily trading volumes have exceeded $600 billion on average over the past few months, according to Liang.
There are a variety of opinions on whether or not a market with weak liquidity would ultimately benefit from the disclosure of more public transaction figures.
The Treasury invited public feedback on the notion of making additional transaction details available to the public in June, for a period of several months.
Liang hinted at a potential future expansion of the public data release by saying, They think that after a sufficient amount of time and experience with increased transparency for on-the-runs, they will consider releasing transaction data for other highly liquid Treasury securities.
The annual meeting at the New York Fed is a part of an effort by the government to explain how the industry operates in the wake of a particularly volatile month in October 2014. In that incident, yields experienced a 12-minute collapse followed by an unidentified rebound. First market review by the government since 1998 resulted from it, and in 2017, Finra started gathering market data that only regulators could see using its Trace platform.
The Treasury started disclosing weekly average trading volume data in March 2020, although many people believed that there should have been more transparency. Since 2020, regulators have improved in a number of ways as well.
Together with other IAWG members, the Treasury has worked to increase the market’s resiliency for US government debt.
The IAWG has been researching the potential advantages and disadvantages of all-to-all trading in Treasury securities, in which different market players transact with one another directly rather than through primary dealers, who have traditionally acted as middlemen in most trades. The standing of the large dealers would probably decline if the involvement of nonbanks was expanded.
In her speech, Liang also discussed initiatives still in development or under consideration, such as Treasury buybacks and ongoing efforts to collect more data for regulators on repurchase agreement transactions. She also discussed the progress that regulators have made to date in enhancing the resilience of the Treasury market.