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4/22/16 - Emerging Issues in the Functioning of the US Treasury Market

The market for U.S. Treasury securities is unique among sovereign debt markets, and security markets more broadly, in its scale, liquidity, and interconnectedness with the global financial system. Recent events of extreme market volatility — most notably the October 2014 “flash rally,” which was unrelated to any obvious fundamental macroeconomic factors — have prompted concerns that the functioning of the Treasury market has been impaired. The U.S. Department of the Treasury issued a Request for Information on the U.S. Treasury market soliciting views on such issues as market structure, market quality, transparency, and market data reporting.

This paper, which was sponsored by the Securities Industry and Financial Markets Association, seeks to provide context for these developments and to explore a number of the major topics related to market quality. It covers two broad thematic areas:

  • The extensive and wide-ranging roles of the U.S. Treasury market
  • The market characteristics needed to support participants’ needs