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U.S. plans to unveil more data on Treasurys trading to help bond market

Nov. 16, 2022 Updated Wed., Nov. 16, 2022 at 9:57 a.m.

The U.S. Treasury Department is shown in Washington, D.C., on Nov. 9, 2022.  (Graeme Sloan/Bloomberg )
The U.S. Treasury Department is shown in Washington, D.C., on Nov. 9, 2022. (Graeme Sloan/Bloomberg )
By LIz Capo McCormick Bloomberg

U.S. regulators are taking a fresh step toward enhancing the level of public reporting of Treasurys trading data, a move aimed at helping boost the resiliency of the world’s biggest bond market.

“We are proposing to provide transaction-level transparency to the public, in a gradual and in a calibrated way,” the Treasury Department’s top domestic finance official, Nellie Liang, said in New York Wednesday. “We will walk, not run,” she said, without specifying when the new trading data will start getting released.

The move comes after months of deliberations and discussions with market participants.

Submissions to the Treasury’s outreach effort on the idea of revealing greater detail on trading showed that “additional transparency may improve investor confidence,” she said.

“Investors could be more assured from observing executed transactions rather than indicative quotes and therefore may be more willing to remain engaged in the market,” Liang said, discussing the findings of the Treasury’s outreach.

They also showed that “additional transparency for transactions may support greater price discovery and thereby expand the supply of liquidity,” she said.

The Treasury is now proposing the release of transaction data for nominal on-the-run Treasurys, which are the most frequently traded and benchmark securities, to be disseminated at the end of each day – with some limits depending on size of trades to be worked out later.

The Financial Industry Regulatory Authority is the agency that gathers the Treasury trading data through Trace, its price-reporting system for bonds.

Price information for benchmark, on-the-run securities “are the fundamental reference point across financial markets,” Liang said at the Federal Reserve Bank of New York.

On-the-runs, she said, account for nearly 80% of nominal Treasurys trading volume.

“Providing additional transparency for the on-the-runs would be consistent with the feedback” that “transparency for these securities would have greater benefits than costs,” Liang said.

She added that information on large trades “should be released cautiously, with the actual size of the trade masked at the point of dissemination, similar to practices used for other fixed-income markets.”

The actual so-called “cap sizes” still need to be determined, but are likely to be tiered based on the interest-rate risk profile, she said.

“There remains details to work out, and we look forward to further engagement with IAWG members and market participants in coming months,” Liang said, referring to the Inter-Agency Working Group on Treasury Market Surveillance, a panel of U.S. regulators.

Greater transparency about trading in the $23.7 trillion Treasury market is seen by some as a move that could encourage further market making – by building a greater understanding of market dynamics and opportunities.

In recent months, daily trading volumes have averaged above $600 billion a day, Liang said.

There’s long been wide-ranging views on whether the publication of more public transaction figures would in the end help or harm a market suffering from faltering liquidity.

The Treasury in June opened up a several month period for public comment on the idea of releasing more transactions details to the public.

“We expect that after a sufficient period of time and experience with additional transparency for on-the-runs, we will consider releasing transaction data for other highly liquid Treasury securities,” Liang said.

The annual gathering at the New York Fed has been part of a push by authorities to shed light on the workings of the business following an extreme bout of volatility in October 2014.

That episode involved a 12-minute crash and subsequent rebound in yields with no apparent trigger.

It prompted the first government review of the market since 1998 and, in 2017, Finra began collecting market data only regulators’ view via its Trace platform.

In March 2020, the Treasury began publicly releasing weekly aggregate trading-volume statistics – a move that fell short for many who felt more transparency was needed.

Regulators have also made several enhancements since 2020.

The Treasury has sought to strengthen the resilience of the U.S. government-debt market in consultation with other members of the IAWG.

Among its activities, the IAWG has been studying the potential benefits and costs of all-to-all trading in Treasurys – where various market participants trade directly with other, avoiding the primary dealers that have historically been the middlemen for most trades.

Expanding the role of nonbanks would likely diminish the standing of the big dealers.

In her speech, Liang also detailed progress that regulators have made to date to improve Treasury market resiliency and efforts still being developed or pondered, such as Treasury buybacks and ongoing work to capture more data for regulators on repurchase agreement transactions.

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