The US Treasury is seeking more post-trade data transparency across the US Treasury securities market amid mounting concern that limited real-time visibility into market behaviour in one of the most deep, liquid, and critical global financial markets could mean regulators are unable to react swiftly to future crises.
Fresh proposals for more data sharing come in the wake of a “weird and scary” market turmoil in March 2020 that caused deep concern across industry. Investment firm Pimco described the meltdown, triggered by market-wide Covid pandemic fears, as culminating in “indiscriminate liquidity challenges across sectors, starting out in U.S. Treasuries – typically the most liquid market – and then quickly expanding to other sectors…”
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The crisis was a moment that struck at the foundations of trust in global capital markets.
As an in-depth March 2021 investigation by the bipartisan Committee on Capital Market Regulation noted: “Policymakers have sought to identify the source of the selling pressure in the Treasury market in March 2020 because holders of U.S. Treasuries, including large financial institutions and foreign investors, rely on the assumption that Treasuries are cash-like instruments. For U.S. Treasuries to continue to function as a global safe haven asset, Treasuries must retain their value and trade efficiently during market crises...”
Yet the investigation found that “policymakers and the public lack the transaction data to comprehensively determine the source of selling in March 2020 that drove the volatility…”
March 2020 Treasury market crisis shows regulators need more data
The market for US debt on a high volume day can surpass $1 trillion in transactions and in a Request for Information (RFI) posted on June 23, the Treasury asked market stakeholders for views on proposals including plans to make certain market participants report transactions not just daily but within 60 minutes.
More access to such Treasury market data could also “improve visibility into intermediation patterns, which could help inform investor decisions around capital allocation” the Treasury has suggested.
It is asking market actors to respond to over 28 specific questions in the RFI.
These include ones on more open data, e.g. “what are your views on providing transaction-level data with anonymized participant identification, with a significant lag, that could either be available to the public or only be available to academic institutions for the purpose of research?” as well as whether “transaction-level details could be released for every Treasury security... including whether volume caps or delays should be tailored to different segments based on the different liquidity characteristics of Treasury securities in those segments…”
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Detailing the March 2020 Treasuries market crisis, the Federal Reserve’s Lorie K. Logan has described “extreme volatility as financial assets repriced to reflect these [pandemic] developments… a broad base dash for cash as investors sought the safety of cash. Even Treasury securities, which are usually seen as the most liquid of financial assets, were being sold broadly to raise dollars” with the Markets Group VP and Manager of the System Open Market Account (the Fed's portfolio of assets built up through open market operations) adding that this shift was “really unprecedented in its scale and in its scope, and resulted in severe disruptions across financial markets.”
As the Treasury itself has detailed: “Some Treasury holders appeared to react to the decline in market liquidity by selling securities for precautionary reasons lest conditions worsen further, and these sales only added to the stress on the market. The cash-futures basis widened sharply as securities sales pressured the cash market while rising volatility increased the risks of arbitrage, and additional cash sales came from basis traders unwinding positions. Even as many investors were selling longer-dated Treasury securities, the desire for cash-like assets prompted a surge in demand for Treasury bills and generated unique stresses in that market sector. Some of these dynamics were difficult for the official sector to assess in real time given data gaps.”
It added in a November 2021 report: “Sustained, forceful official sector actions were ultimately required to break the cycle of stresses and support smooth market functioning, as well as the economy more broadly.”
Pimco agrees that the March 2020 Treasury market crisis "exposed the need for more transparency around margining in Treasury repos in particular. While the U.S. Office of Financial Research has been collecting repo data, it does not necessarily have access to high-frequency data or visibility into levered participants’ borrowing in portions of the repo market. This lack of transparency may have hampered policymakers from understanding the extent of issues facing the market in March and thereby hindered the timeliness of their response. More real-time transparency would provide regulators with better insights and clarity, particularly in a time of crisis, thereby providing policymakers a more informed position from which to act."