Treasury official suggests plan to release more bond trading data

A senior Treasury Department official has proposed changes to the way transactions in the $24 trillion US Treasury bond market are disclosed amid calls for improved transparency and resilience of what is considered the basis of the US Treasury bond market global financial system is becoming louder.

Treasury trading is notoriously opaque, and regulators and investors have long cautioned that more insight would boost investor confidence, help officials spot problems earlier, and strengthen market functioning, participation and stability.

Treasury is proposing that transaction data for the most widely traded government bonds — known as on-the-run bonds — will be released daily from early 2023, with some limitations on reporting expected depending on trade size. The comments were made by Nellie Liang, the ministry’s undersecretary for domestic finance, at a conference on Wednesday hosted by the New York Fed on the Treasury market.

After some experience with this type of reporting, Liang said the Treasury would consider releasing data on other bonds, as well as hourly rather than daily reporting.

“The work to improve data quality and availability in the treasury market has been designed to support the official sector’s ability to assess market conditions and readiness to respond to market stresses, and also to provide transparency that Promoting public trust, fair trade and a market ecosystem makes for more resilient and elastic liquidity,” Liang said.

Securities and Exchange Commission Chairman Gary Gensler later in the day reiterated his agency’s support for the transparency measures.

The smooth functioning and resilience of financial markets was the focus of Wednesday’s conference, at which New York Fed President John Williams said market malfunctions risked undermining the effectiveness of the Fed’s monetary tightening efforts.

Williams underscored the need for the central bank to continue its aggressive push to tame historically high inflation — which has included steep rate hikes and a rapid rundown of its roughly $8 trillion balance sheet — while finding solutions to strengthen the resilience of the financial system.

“If the Treasury market isn’t working well, it can impede the transmission of monetary policy to the economy,” he said.

He added: “Now is the time to find solutions that will strengthen our financial system without jeopardizing our monetary policy goals.”

Wednesday’s conference comes at a difficult time for the world’s main bond market. Liquidity, or the ease with which traders can buy and sell bonds, has deteriorated significantly as the Fed tightened monetary policy aggressively to curb inflation this year.

Treasury yields move with interest rate policy and the volatility in yields this year, combined with uncertainty about the Fed’s future course, has made buying and selling bonds more difficult and expensive. The concern is that poor liquidity could lead to even greater volatility and increase the likelihood of a financial disaster.

Further undermining the functioning of the market, by which all securities are valued, is a series of long-standing structural flaws that have meant that shocks have become commonplace in what should be a global safe haven.

This has led to repeated calls for a regulatory overhaul – something the Fed, Treasury Department, Securities and Exchange Commission and Commodity Futures Trading Commission have been calling for since a “flash crash” in 2014 that saw prices across all maturities dramatically fluctuated, wanted to push forward.

The fragility was last exposed in March 2020 when fears of a coronavirus pandemic triggered a chaotic rush for cash that led to price volatility. That made it nearly impossible to trade, with brokers’ screens going black at times as liquidity evaporated and the Fed was forced to step in.

Williams acknowledged on Wednesday that the size of the Treasury market has increased dramatically in recent decades and participants that were once significant players have retreated, contributing to previous market shocks research has shown.

Also on Wednesday, US lawmakers urged Michael Barr, the Fed’s deputy supervisor, about how regulation has hurt liquidity and what reforms are needed to stave off further shocks.

“As we saw with UK gilts markets, when the central bank had to step in to prop up this market, there was a wide-ranging negative impact,” Patrick McHenry, a Republican member of the House of Representatives, said at a House Financial Services Committee hearing. “We don’t want to see that in our Treasuries market and I hope you can take care of it before an unfortunate event occurs that could have serious consequences.”

In response to McHenry’s question about the supplemental leverage ratio, which requires large banks to hold capital equal to at least 3 percent of their assets, Barr said the Fed is reviewing that requirement.

Missouri Representative Ann Wagner also grilled Barr about Treasury Department liquidity. Treasury official suggests plan to release more bond trading data

Adam Bradshaw

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