The Federal Reserve Bank of New York on Monday reiterated the
highlights of a multiagency report last week addressing turmoil in
the $12.7 trillion U.S. Treasury market, saying the findings would
underpin "discussion of next steps toward a fuller understanding"
of changes in the Treasury market.
Researchers in the New York Fed's Liberty Street Economics blog
called the 0.37 percentage point trading range seen Oct. 15, 2014
in the yield of the 10-year U.S. Treasury note "highly unusual." It
was a move James Dimon, chief executive of J.P. Morgan Chase &
Co., said should happen only once every three billion years or
so.
That morning, Treasury yields plummeted within minutes, without
analysts and observers being able to point to a single direct
cause. In bonds, yields and prices move in opposite directions, so
the move sent prices in the bonds skyrocketing, before they later
settled.
Regulators in the 76-page report released last week called for
more scrutiny of publicly available data on the U.S. Treasury
market, and a review of whether more data needed to be
collected.
The health of the Treasury market is critical because it serves
as a benchmark for everything from mortgages to corporate borrowing
rates. Regulators have been analyzing the implications of the
evolving Treasury market, the New York Fed said, "to support the
goal of maintaining a highly liquid and resilient market."
Some of the drivers of the moves on Oct. 15 included weak retail
sales data, the unwinding of bearish bets on Treasurys, and a
decline in market depth, as broker dealers and high-frequency
trading firms reacted quickly to what was happening on their
screens.
"Bank dealers and principal trading firms changed their behavior
in response to the high volatility," the researchers said.
"Liquidity conditions were strained, but volumes reached record
highs."
The multiagency report relied on nonpublic trade data on the
market from Oct. 15, and was produced by the U.S. Treasury
Department, the Federal Reserve, the New York Fed, the Securities
and Exchange Commission and the Commodity Futures Trading
Commission.
It said "self-trading," where the same firm takes both sides of
a trade, increased during the window of time analyzed.
Write to Katy Burne at katy.burne@wsj.com
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