Michelle Neal: Opening remarks - "2023 US Treasury Market
Conference"
Opening remarks by Ms Michelle Neal, Executive Vice President and Head of Markets
of the Federal Reserve Bank of New York, at the 2023 US Treasury Market
Conference, Federal Reserve Bank of New York, New York City, 16 November 2023.
* * *
As prepared for delivery
Good morning, everyone. It's a pleasure to welcome you all, including those joining us
through the livestream, to the 2023 U.S. Treasury Market Conference.
On behalf of the New York Fed and also our conference co-hosts-the U.S. Department
of the Treasury, the Board of Governors of the Federal Reserve System, the U.S.
Commodity Futures Trading Commission, and the U.S. Securities and Exchange
Commission-thank you all for participating in today's ninth annual conference.
As we've often noted in this forum, the U.S. Treasury market is the deepest and most
liquid securities market in the world. It plays a critical role in the global economy,
serving as the primary means of financing the U.S. federal government, a safe
investment instrument and hedging vehicle for global investors, a risk-free benchmark
for other financial instruments, and an important market for the Federal Reserve's
implementation of monetary policy.
Over the course of the day, we will be highlighting key developments, policy issues, and
recent trends in the Treasury market, including considerations to encourage continuous
improvements in this critical market's functioning and resilience.
The U.S. Treasury Market Conference is an important annual forum for information
sharing and dialogue between the official sector and the public, which is key to
advancing our common understanding of the Treasury market. Today, as part of that
dialogue, I would like to provide some brief remarks on the important role data
transparency plays in supporting market functioning and resilience and thoughts on the
future. Before I go any further, let me please remind you that the views I express here
are my own, and not the views of the Federal Reserve Bank of New York or the Federal
Reserve System.1
Increased transparency of Treasury market transaction data can help build knowledge
around trading dynamics in the market and can improve investor confidence by allowing
investors to analyze executed transactions instead of observing indicative quotes. The
reporting of executed prices improves price discovery, which can reduce trading costs,
improve liquidity, and potentially attract new entrants to the market.
Recently, there have been some important steps toward increased data and
transparency in the U.S. Treasury market. Earlier this year, FINRA began releasing
daily aggregate data on Treasury market transactions, and at this conference last year,
the U.S. Department of the Treasury announced plans to release TRACE transaction
data for on-the-run nominal coupons. However, even with this progress, gaps in
transparency remain.
In March, the Treasury Markets Practices Group (TMPG), which is sponsored by the
New York Fed, put out a white paper on data availability and transparency in the U.S.
Treasury market that identified several gaps, particularly in the dealer-to-client cash
market and the repo market. Looking at the gap in the cash market specifically, there
appears to be opportunity for improvement in providing transparency around
transaction-level data.
I am looking forward to the increased transparency in on-the-run transaction data that I
mentioned earlier. Looking further ahead, we should consider whether to take additional
steps toward increased transaction transparency across the Treasury universe,
especially for the less liquid segments of the Treasury market, such as the off-the-run
market, where transparency is currently limited. The off-the-run market was the center
of much of the dash-for-cash selling of Treasuries that occurred in March 2020, yet
there is little data on off-the-run trading available to the public, making it challenging for
academics and others to study such stress events in detail.
As we think about increasing transparency, it is important to exercise continued
prudence, as there can be reasonable concerns about public transaction data, such as
potential challenges that data may create around intermediating certain large trades.
However, the success of public TRACE data transparency in the mortgage-backed
securities and corporate bond markets provides guidance on how data can be shared
without negatively impacting the market, such as displaying data with appropriate
mitigation measures like time delays and capped trade sizes. In fact, academic
research has generally found that the introduction of TRACE data transparency in these
markets resulted in increased competition and reduced transaction costs. Additionally,
we can learn more about how to structure public releases of data on less-liquid
securities by studying the future release of on-the-run transaction data.
Greater transparency into Treasury market activity can support the market's many
important roles: as a risk-free benchmark for financial instruments; as a liquid
investment and source of safe collateral; as a channel for the implementation of
monetary policy; and, of course, as a cost-effective mechanism to help finance U.S.
government activities.
Today's conference provides an excellent opportunity to discuss topics like this one,
and to bring together diverse perspectives from across the Treasury market and the
official sector to consider the best path forward to promote Treasury market resilience.
Thank you all for joining us today.
1
I would like to thank Leon Barker and Ellen Correia Golay for their assistance in
preparing these remarks.