As the Fed marks its second annual conference on the evolving structure of the US Treasury market, there has been much debate over the future of the $13tn bond market.
The conference was established following the now infamous flash crash in US Treasuries on October 15 2014, which saw enormous swings in the 10-year benchmark – causing a major upset and soul-searching about the structure of the market.
A particular topic that caught the interest of market participants during this year’s conference was trade reporting. At present, there is no requirement to report trades involving US Treasuries, unlike corporate bonds or equity markets. However, in a bid to bring further transparency to the market, Antonio Weiss, counsellor to the secretary of the US Treasury, has now called for trades to be publicly reported.
Mary Jo White, Chair of the Securities and Exchange Commission (SEC) echoed the sentiment, arguing that regulators needed “full access” to trading data, and firms buying and selling Treasuries for proprietary reasons should register as dealers.
Understandably, this has stirred up significant debate amongst market participants. As the world’s largest debt market, the US Treasury plays a major role in the cost of government finance, so any changes to how the market is governed will likely cause concern about unintended consequences.
Whilst many market participants appear to be in agreement about providing further information to regulators and increasing transparency, several banks have warned that, depending on how quickly trades are reported, it may disrupt the effective functioning of the market.
One specific concern relates to competitors potentially using this information to gain an advantage and move markets against them. Such behaviour could have a particularly hard impact when trading in large block sizes.
Reforming a market as critical as US Treasuries is no small task and it is clear that regulators are still in the early stages of this process. Perhaps by next year’s conference there will be further clarity as to the road ahead.