NewsUS Treasury
Jun 06, 2024 11:55 AM EDT
According to a Treasury official on Wednesday, the Treasury repurchase program should increase liquidity in the US government bond market while other measures will provide pricing transparency and insight into the use of leverage.
Treasury off-the-run assets are older and less liquid; to provide market participants a regular opportunity to sell back to Treasury, the Treasury initiated a repurchase program last month across the yield curve. It didn't conduct regular repurchase operations for almost two years in 2000.
"As they will have Treasury as a regular and predictable buyer," Assistant Secretary for Financial Markets Joshua Frost said in prepared remarks for the ISDA/SIFMA Treasury Forum in New York, buybacks should encourage dealers to develop markets for off-the-run assets.
According to him, they should also encourage more trade and enable bond dealers to clear balance sheets.
The first repurchase occurred last week, and although Treasury anticipates continuing weekly purchases, with caps rising to $30 billion per quarter in the upcoming months, the success of the operations will rely on pricing, according to Frost.
The Treasury and other institutions have initiated a number of steps, including buybacks, to increase liquidity and prevent trade interruptions in the world's largest bond market, which is the foundation of the global financial system.
December saw a significant reform was enacted by the Securities and Exchange Commission to increase the use of central clearing for U.S. Treasury securities that are applicable to the repo and cash Treasury markets, wherein funds and banks exchange loans secured by Treasury securities.
The Financial Industry Regulatory Authority (FINRA) started releasing data earlier this year and creates a new tab at the end of each day on each individual Treasury securities transactions.
More recently, the Treasury's Office of Financial Research (OFR) said that it will shortly begin gathering information on trades made in the opaque non-centrally cleared bilateral repo market, which is primarily utilized by hedge funds to fund their deals.
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The newly initiated Treasury repurchase program is poised to significantly enhance the liquidity of off-the-run assets, which are older and typically less traded Treasury securities. By providing a regular and predictable buyer in the form of the Treasury, the program is expected to encourage market participants to engage more actively with these assets.
This increased liquidity is not only beneficial for market participants looking to offload older securities but also for the overall health of the US government bond market. With the Treasury committing to regular buybacks, market participants will have greater confidence in their ability to sell these assets, thus potentially increasing trading volumes and improving price discovery. The initial repurchase operations, with caps projected to rise to $30 billion per quarter, signal a strong commitment to supporting market liquidity.
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