Greenwich: Treasuries volatility ‘crazy’ low compared to 2019

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Analysis by research firm Greenwich Associates has found the US Treasury market saw volatility 50% lower in August 2020 than in August 2019, which report author Kevin McPartland observed is “a somewhat crazy notion given the state of the global economy in 2020 compared to a year ago.”

Volume and volatility were depressed in August, the research found, compared to the same period last year with the average daily volume (ADV) of US Treasury trading reaching US$493 billion, lower by 18% compared with August 2019 and slightly up on July 2020.

Within that, the overall proportion of electronic trading (e-trading) volumes climbed slightly, bringing the market back closer to pre-pandemic levels. The growth was driven in large part by the return of central limit order book (CLOB) trading, which accounted for over 27% of total market volume and had fallen in July relative to dealer-to-client trading which increased that month. Yet while this is the highest CLOB level seen since March, it remains far behind the 43% of market volume executed via CLOBs in August 2019.

Federal Reserve bond buying dropped 17% from July to its lowest level since the current crisis took off in March in August, although the US$71 billion in coupon bonds purchased by the Fed in August is more than four times the $15 billion they purchased in February before the pandemic took hold.

Greenwich also reported that gross new issuance of US Treasuries came in at US$1.9 trillion in August, down from $1.8 trillion the month before, but 60% higher than the US$985 billion issued in August of 2019. Primary dealer net positions declined in August as well, averaging US$239 billion, although they remain above the highest numbers seen in 2019.

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