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Discussion Paper
Price Impact of Trades and Orders in the U.S. Treasury Securities Market
It’s long been known that asset prices respond not only to public information, such as macroeconomic announcements, but also to private information revealed through trading. More recently, with the growth of high-frequency trading, academics have argued that limit orders—orders to buy or sell a security at a specific price or better—also contain information. In this post, we examine the information content of trades and limit orders in the U.S. Treasury securities market, following this paper, recently published in the Journal of Financial Markets and earlier as a New York Fed staff ...
Working Paper
Price Discovery in the U.S. Treasury Cash Market: On Principal Trading Firms and Dealers
We explore the following question: does the trading activity of registered dealers on Treasury interdealer broker (IDB) platforms differ from that of principal trading firms (PTFs), and if so, how and to what effect on market liquidity? To do so, we use a novel dataset that combines Treasury cash transaction reports from FINRA’s Trade Reporting and Compliance Engine (TRACE) and publicly available limit order book data from BrokerTec. We find that trades conducted in a limit order book setting have high permanent price impact when a PTF is the passive party, playing the role of ...
Report
Measuring treasury market liquidity
This paper examines a comprehensive set of liquidity measures for the U.S. Treasury market. The measures are analyzed relative to one another, across securities, and over time. I find highly significant price impact coefficients, such that a simple model that explains price changes with net order flow produces an R statistic above 30 percent for the two-year note. The price impact coefficients are highly correlated with bid-ask spreads and with episodes of reported poor liquidity (such as the fall 1998 financial markets turmoil). Quote and trade sizes correlate modestly with these episodes ...