Bringing innovation and liquidity to the US Treasuries market

Dan Barnes

Earlier this month, PIMCO, one of the world’s largest fixed income asset managers, published their view on how to improve the functioning of the US Treasury market. The paper was picked up quickly by Robin Wigglesworth at the FT – which served to further highlight how market participants and observers alike are (very) worried about the fragility of the world’s most important financial market.

The views expressed in the paper reflect our own, and – if the PIMCO team will forgive me for paraphrasing – boiled down to the need to make it easier for any and all participants to make markets in USTs. And to enable those participants to access a large and reliable liquidity pool even in times of market stress. The proposed actions included providing broader access to the Fed’s standing repo facility, adjusting existing Dodd-Frank regulation to better balance market function vs. safeguarding, and, importantly, moving “the entire treasury market… to all-to-all trading”.

Friends and clients of MarketAxess will pick up their ears at this last part. That’s right – all-to-all trading. Something that we launched for credit back in 2013 – having learned valuable lessons about liquidity from the crisis of 2008 and beyond. Our aim then, which still stands today, was to reduce liquidity fragmentation and “evaporation”, as the PIMCO report puts it, and to drive transparency and price improvement for all participants (so not just all-to-all, actually, but all-for-all – our platform, Open Trading®, is not an exclusive club). The question raised in the report is – can we now do the same for US Treasuries?

Good news reader – we already are. We’ve already begun to bring to market many of the concepts of all-to-all for USTs that PIMCO outline in their report.

PIMCO noted several potential A2A benefits / key functions – such as inclusivity, access to data & pricing information, anonymity, CLOB-style trading capabilities etc. Well, last year, we launched Live Markets for US Treasuries – firm, executable, streaming prices (for both on-the-runs and off-the-runs) in an easy to use, customized order book. An accessible, executable, diversified liquidity pool designed to minimize your information leakage and improve the quality of pricing.

On data & pricing – we’ve also worked hard to develop and refine our market-leading Composite+™ (CP+) pricing service for US Treasuries. With data sourced from real-time dealer contributions and aggregated, top-of-book pricing from Live Markets, we can offer accurate indicative composite pricing for all UST Bills, Notes and Bonds.

The next step is RFQ, which we launched this summer. Our RFQ solution supports both solicited workflow and unsolicited workflows and takes advantage of our newly designed platform GUI to provide a customizable activity console and execution display.

As we develop the Open Trading approach for USTs (further reflecting the suggestions in the report), our goal is to provide all clients with access to alternative liquidity, while prioritizing the liquidity access needs of currently underserved mid-tier clients. Reaching more alternative liquidity providers through Open Trading will be integrated into our US Treasuries RFQ experience, providing optionality of execution and a unique, reliable liquidity pool for Rates traders in any firm.

In short – what we started with and successfully built for global credit markets we’re now doing for rates. Even where broader adoption or market structure may be slow to evolve with us, as always we’re looking further ahead and developing a market that offers deeper liquidity and greater resilience. The pace of change is increasing, and as we’ve seen in credit, there will come an inflection point where regulators, clients, dealers and platform providers align. Hopefully we’re close to that point in USTs – because the technology and the tools exist.

If you’d like to find out more about any of our US Treasury tools and services, please click here or get in touch with a MarketAxess sales rep.