Odd Lots Why Treasury Market Spasms That Shouldn't Happen Keep Happening
Apr 8, 2021
Yesha Yadav, a Professor at Vanderbilt Law School with expertise in market structure, delves into the perplexing volatility of the U.S. Treasury market. She discusses the regulatory inadequacies that contribute to these bizarre market fluctuations. Key topics include the impact of high-frequency trading, liquidity issues, and the diminishing role of primary dealers. Yadav advocates for a cohesive regulatory approach and emphasizes the urgent need for reform to maintain the Treasury's status as a reliable financial benchmark.
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Treasury Market Transformation
- The U.S. Treasury market structure has changed significantly, impacting its functioning and liquidity.
- The shift from a slow, over-the-counter market to high-frequency trading has introduced new risks and dynamics.
Fragmented Regulatory Structure
- The U.S. Treasury market's regulatory structure is fragmented, unlike other markets like equities or derivatives.
- This fragmentation creates gaps and hinders effective oversight, potentially contributing to market volatility.
Measuring Treasury Liquidity
- Measuring Treasury market liquidity is complex, but focuses on trading without price impact.
- Recent events reveal price dislocations due to liquidity concerns, not fundamental changes.