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Treasuries Hit Roadblock on Way to Trading Like Stocks 

August 29, 2016

Lisa Abramowicz, Bloomberg Gadfly

The $13.4 trillion Treasury market is the deepest, most active debt market in the world. Yet it has some surprisingly dysfunctional corners, especially when it comes to the most pedestrian part of trading: processing paperwork in back offices. 

According to estimates from various market participants, about half of Treasury trades are cleared centrally through the Fixed Income Clearing Corporation, whose members --- about 150 banks and brokers -- post collateral to compensate for losses if a party fails to live up to its end of the deal. The other half is cleared bilaterally, meaning that the parties come up with their own ways of assessing and protecting against such risk.

This hodgepodge approach to clearing presents a bigger challenge for firms when managing their trading risk than it does for, say, stocks, which are all cleared centrally.

Treasury yields are an important benchmark for everything from mortgages to corporate debt. Read more

 

 
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