government borrowing 200 years ago-and remains one of the principal infrastructure providers in the Treasury market today-BNY Mellon hopes to foster greater stability and better prepare the Treasury market for decades to come.Īt times, some traders said it was easier to sell low-grade corporate debt than illiquid Treasuries. As an institution that played a pivotal role in the first instance of U.S. The industry needs to connect the risks of past events with proposed structural changes that could make the Treasury market more resilient in the future. Should investors lose faith in their ability to convert Treasuries to cash at reasonable prices, or get the securities they need for hedging, it could have worrisome knock-on effects on securities prices worldwide and potentially the U.S.
deficit is growing and when interest rates are expected to rise. But liquidity is increasingly liable to disappear during periods of stress, which is a worry at a time when the U.S. The functions underpinning day-to-day Treasury settlements are not a cause for concern. A third idea is to revisit leverage rules targeting banks to try to prevent them from gumming up markets and a fourth is to increase transparency. Another is to boost membership of an industry clearinghouse and increase the Fed’s oversight of that utility. One idea is to broaden access to a new Fed backstop beyond primary dealers and banks. The prevailing view of academics, regulators and others tasked with understanding the latest liquidity shortages is that the Treasury market’s infrastructure, and the Federal Reserve’s role in it, needs to be reevaluated-as do regulations affecting the market. And the Federal Reserve has increased its footprint by buying trillions of dollars of Treasuries and shoring up the market for repurchase agreements or “repos” backed by Treasury securities. The size of the market has expanded, overwhelming the capacity of broker dealers to facilitate Treasury trading. Over the years, cracks have emerged as sophisticated technology platforms and high-frequency traders have contributed to faster flows. That was just the latest episode exposing fault lines in the $22 trillion Treasury market. For those trading in March 2020, it was surprising how the pandemic-induced panic threatened the integrity of even safe-haven government securities and how challenging it was to sell them. Treasury trading have been incongruous with a market that holds itself out as the deepest and most liquid in the world. Governments, Sovereigns & Not-For-Profits.
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