Treasury Inches Closer to All-to-All Trading
Building on our initial assessment, this report goes in-depth into the Treasury assessment of the market for its obligations and reforms necessary to avert another dash for cash. Although the Federal Reserve, which participated in this study along with other agencies, indicated in 2020 it will review the supplemental leverage ratio (SLR) to enhance bond-market liquidity, it has yet to do so and no mention is made of any such reform in this report. To be sure, this is only a Treasury report that does not necessarily reflect the views of these other agencies, but the Fed and Treasury usually work closely on matters such as this and it seems unlikely that the matter would go unmentioned if plans were under way to revise the SLR. The 2022 report builds on the inter-agency working group’s 2021 analysis (see Client Report TMARKET2) but still does not reach firm conclusions or lay out specific recommendations suitable for near-term action. However, work is in fact under way at the SEC, which has proposed a new central-clearing mechanism for Treasury obligations that, if finalized, would create at least some of the infrastructure necessary for the all-to-all trading this report now explores in greater detail. Next steps for Treasury-market reform will be discussed at a conference later this week.