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Officials from the Federal Reserve and the Treasury Department on Thursday called for increased transparency into data for the $26tn Treasury bond market at an annual conference hosted by the New York Fed.
The Treasury market is the biggest and most liquid in the world, but publicly available data on transactions is limited. This has meant that when problems occur — the March 2020 market crisis, for example — it has been hard to untangle what happened and which market participants were involved.
In recent years there has been a push to bring more transparency to the market, and last year, Treasury under-secretary Nellie Liang proposed changes to the way transactions would be disclosed. Liang on Thursday noted that “important progress” had been made to implement Treasury’s proposal to publicly report transaction data for the most widely traded Treasury bonds — so-called on-the-run bonds.
One set of transaction data is now being reported daily, and there is more to come, if the US Securities and Exchange Commission approves a final rule proposed two weeks ago by the Financial Industry Regulatory Authority, an industry watchdog. Liang said that once Treasury has “had time to evaluate the effects of disseminating on-the-run transactions, we’ll consider possible next steps for additional transparency”.
New York Fed officials at Thursday’s conference said even more data transparency was needed.
“We should consider whether to take additional steps towards increased transaction transparency across the Treasury universe, especially for the less liquid segments of the Treasury market, such as the off-the-run market, where transparency is currently limited,” said Michelle Neal, who is head of the markets group at the New York Fed.
Neal noted that off-the-run Treasuries — which are less frequently traded — were at the centre of much of the dash-for-cash selling that occurred in March 2020. Studying events like that was challenging, she added, given the limited data.
Structural problems in the Treasury market have plagued regulators in recent years. The market is five times the size it was in 2007, and the make-up of participants has changed dramatically in that period. Regulations enacted after the 2008 financial crisis have led banks to reduce the traditional roles they have played in the market, and less-regulated entities with fewer reporting requirements — such as high-speed traders and hedge funds — have taken their place.
These shifts, and the proliferation of highly leveraged trades in the market, have exacerbated stress in the market during events such as the 2014 flash rally, the 2019 repo crisis and the 2020 dash for cash.
New York Fed president John Williams echoed the call for more transparency on Thursday, saying “it’s important that we continue to prioritise transparency and clarity in data, especially financial market data”.
“This is particularly true in the age of AI, when the sources of data are harder to trace,” he added.
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