(Bloomberg) -- The US Treasury debt buybacks that began in late May have begun to improve liquidity in the market for older notes and bonds, Joshua Frost, the Treasury Department’s assistant secretary for financial markets, said Monday.
“Feedback from primary dealers has provided early indications that the Treasury’s buyback operations are supporting off-the-run liquidity,” Frost said in prepared remarks for the Securities Industry and Financial Markets Association’s annual meeting in New York.
Buybacks of Treasuries that are infrequently traded relative to its newest, or “on the run,” notes and bonds, are intended to support market resilience by creating opportunities for dealers to offload them. There have been 20 weekly operations so far, absorbing more than $30 billion of securities, Frost said. It’s the first regular buyback program since 2000-2002.
He discussed the buyback program in wide-ranging comments on steps that have been taken to improve resiliency of the Treasury market since its most recent crisis in 2020, and the ways in which the department tries to obtain the lowest cost of financing over time.
“On the path ahead, we are going to continue to look at the program’s progress,” Frost said regarding the buyback initiative in answering questions after his remarks. While a lot of positive feedback has come in, “we are not looking to take a victory lap just yet,” he said.
Trading Transparency
The other resiliency steps — organized through the Inter-Agency Working Group on Treasury Market Surveillance — comprising Treasury, Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission staff — include new rules and data-collection mechanisms.
On the measures taken in recent years to improve trade transparency, Frost stressed the department is taking a “walk-not-run framework” as it gauges the benefits and potential risks of sharing more details of trading activity with the public.
“The engagement that we have had with market participants has suggested that it has gone well,” Frost said. “We have to think on a go-forward basis on whether additional transparency would be beneficial and appropriate.”
Among the trade data that aren’t currently revealed but which could potentially be looked at in future for release: activity in off-the-run Treasuries, bills and inflation-linked government debt, Frost said.
Central Clearing
One of the new rules going forward for Treasuries trading requires central clearing for a large swath of cash Treasuries trading, and for almost all repurchase agreements involving those securities. takes effect in stages over the next two years.
Another rule expands the definition of a government securities dealer in a way that will require so-called principal trading firms that are among the biggest market-makers of Treasuries to register with the SEC. The industry is challenging the rule in court.
The data-collection efforts are focused on non-centrally cleared bilateral repo transactions, aimed at improving understanding “of how repo activity is shifting over time between bilateral and centrally cleared, and what repo trades may remain outside of central clearing,” Frost said.
The department also has expanded publication to market participants of limited daily transaction data.
Treasury’s Principles
Frost’s comments Monday on the main principles of US debt management policy echoed ones he made in July, when he gave the most extensive discussion on the topic in more than a decade.
The principles include promoting a broad and diverse investor base, a “regular and predictable” issuance paradigm, and a “a robust process to formulate our borrowing plans” on a quarterly cycle, he said. The next announcement of tentative auction and buyback schedules is slated for Oct. 30.
(Adds additional comments from Frost during the Q&A period, starting in fifth paragraph.)
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