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February 1, 2019

At the New York Fed: Fourth Annual Conference on the Evolving Structure of the U.S. Treasury Market

The New York Fed recently hosted the fourth annual Conference on the Evolving Structure of the U.S. Treasury Market. The one-day event was co-sponsored with the U.S. Department of the Treasury, the Federal Reserve Board, the U.S. Securities and Exchange Commission (SEC), and the U.S. Commodity Futures Trading Commission (CFTC). This year’s agenda, which included a series of keynote addresses and expert panels, focused on four key topics: 1) analytical approaches to debt issuance, 2) clearing and settlement, 3) developments in cash and repo markets, and 4) analysis of transactions data. Previous conferences were held in November 2017, October 2016, and October 2015.

New York Fed President John Williams laid the groundwork for the day’s discussions in his introductory remarks by reminding the audience how changes in Treasury market structure had attracted increased attention since the flash rally of October 15, 2014. He further noted the collective responsibility of the private and public sectors for safeguarding the global benchmark status of the Treasury market as the deepest, most liquid, and most efficient risk-free market in the world.

The conference proceeded with the presentation of a model-based framework for optimizing the maturity structure of U.S. Treasury debt, followed by a panel discussion. The model, which was originally developed by members of the Treasury Borrowing Advisory Committee, can be used to assess the trade-offs between various debt issuance strategies and the sensitivity of these trade-offs to differing assumptions. In particular, the model captures the trade-off between short-term financing, which is associated with lower but more volatile interest expenses, and long-term financing, which is associated with higher but less volatile interest expenses. The model suggests that issuing debt at intermediate maturities is appealing because it lowers the volatility of interest expenses without high expected interest costs.

The next panel began with an overview of the work of the Treasury Market Practices Group on clearing and settlement in the Treasury cash market, as discussed in a consultative white paper. The TMPG observed that market participants may not be applying the same risk management rigor to their clearing and settlement of Treasury securities as they do for other areas where they face risks. This is of particular concern since, unlike other markets, bilateral clearing has grown in Treasuries and now accounts for over 75 percent of volume. The panelists suggested that market participants review their clearing and settlement arrangements and ensure that they understand how counterparty and credit extension risks evolve over the settlement life cycle.

The final two panels of the day addressed recent developments and innovations in the Treasury cash and repo markets. The repo panel considered the effects of several recent developments, including the Capped Contingency Liquidity Facility of the Fixed Income Clearing Corporation and the growing use of the Secured Overnight Financing Rate. The cash panel discussed the opportunities and challenges emanating from the growth of trading on electronic venues and the important innovations that might emerge in future years.

At the conference, three keynote addresses focused on analysis of Treasury TRACE transactions data. Lael Brainard, a member of the Board of Governors of the Federal Reserve System, reviewed several initial findings concerning the distribution of activity and intraday trading patterns across security type, participant type, and trading venue, some of which are discussed in this Liberty Street Economics post and this earlier post. She also reported that the Fed is close to finalizing an agreement to expand the collection of Treasury transactions to key banks active in the market.

J. Christopher Giancarlo, chairman of the CFTC, discussed a December 2018 CFTC study on the relative liquidity of exchange-traded futures contracts and cash securities in the Treasury market. One interesting finding is that risk-adjusted volume is greater across all cash securities than across all futures contracts, but that the 10-year futures contract is the single-most traded instrument. The CFTC study also found that activity migrates from less liquid cash securities to more liquid futures contracts as volatility increases.

Craig Phillips, counselor to the secretary of the U.S. Department of the Treasury, also discussed some observations from the TRACE data, including the finding that most dealer-to-customer trades occur within the bid-ask spread. Counselor Phillips further reviewed suggestions for data improvements, including a new requirement that large trading platforms that are operated by FINRA members identify their customers in their reporting of transactions to TRACE. Lastly, his remarks summarized Treasury’s recent outreach efforts concerning the possible public dissemination of the data, and the potential benefits and costs of doing so.


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Fleming_michaelMichael Fleming is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Keane_frankFrank Keane is a senior policy advisor and a vice president in the Bank’s Markets Group.

335403Justin Meyer is a manager in the Bank’s Markets Group.

How to cite this blog post:

Michael Fleming, Frank Keane, and Justin Meyer, “At the New York Fed: Fourth Annual Conference on the Evolving Structure of the U.S. Treasury Market,” Federal Reserve Bank of New York Liberty Street Economics (blog), February 1, 2019,

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