What happened: The Inter-Agency Working Group on Treasury Market Surveillance (IAWG) issued a staff progress report highlighting the significant steps taken to enhance the resilience of the U.S. Treasury market. The report was published last Friday. The IAWG includes staff from the U.S. Treasury, Federal Reserve Board, Federal Reserve Bank of New York, SEC, and CFTC.
The report identifies notable accomplishments, including:
- The SEC’s adoption of rules to facilitate the clearing of additional Treasury securities transactions
- The Treasury Department’s launch of a buyback program to improve market liquidity and enhance its cash management capabilities
- The SEC’s adoption of new rules requiring registration for market participants acting as dealers
- The commencement of data dissemination on individual transactions involving on-the-run nominal coupon Treasury securities
- The OFR’s finalization of a rule requiring the reporting of non-centrally cleared bilateral repurchase agreements
Why it matters: Metrics show improved Treasury market liquidity in 2024. However, the IAWG remains focused on risk management in the Treasury markets, noting that hedge funds are key participants in the U.S. Treasury cash-futures basis trade. The report states that liquidity risk in certain investor positions and funds can amplify market stress. It also notes that FSOC’s Hedge Fund Working Group (HFWG) further refined its monitoring of these vulnerabilities and the Treasury Market Practices Group (TMPG), an industry-based group sponsored by the FRBNY, advanced initiatives to strengthen risk management and market resilience.
MFA on the issue: MFA is monitoring the IAWG’s work and evaluating the need for further advocacy and education with policymakers regarding the role of hedge funds in the Treasury markets.
What’s next: On Thursday, September 26, the joint member agencies will hold the tenth annual U.S. Treasury Market Conference to discuss recent developments and policies to improve Treasury market resilience.
