U.S. Treasuries

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U.S. Treasuries is the collective term for all debt securities of varying maturities issued by the U.S. Treasury Department.[1]

The investment heft of the securities is such that they typically serve as a broad benchmark for the performance of comparable bonds and debt securities in global credit markets.

U.S. Treasuries vary in maturity from 4-week Treasury bills (T-bills) to 5-year Treasury notes (T-notes) to 30-year Treasury bonds (T-bonds). All U.S. Treasuries have recently been in strong demand from global investors as stock and currency markets rise and fall. The 10-year U.S. T-note yield recently fell to its lowest level in more than fifty years as investors bought Treasuries as a safe haven from global market turmoil.[2]

U.S. Treasury Clearing

U.S. Treasury securities are cleared in the secondary market in different ways depending on who were party to the trade. The secondary market is composed of purchase and sales through dealer to dealer transactions, as well as dealer to customer transactions.

Since 2000, there has been much change to the dealer to dealer segment of the market as increased computer technology, trading platform innovations and automated execution strategies has attracted principal trading firms to the market.[3]

float

In the case of a dealer to customer trade, the dealers act as market makers, buying and selling for their own account from their customers. These trade are bilaterally cleared, which means the dealer and the customer managed any counterparty risks.

In the case of a dealer to dealer trade, dealers trade with another dealer through an interdealer broker (IDB).

Interdealerbrokers and other firms are members of the Fixed Income Clearing Corporation (FICC), which is a financial utility owned by DTCC that acts as a central counterparty for trades made between two members.

Since the introduction of principal trading firms to Treasuries trading, a hybrid approach to clearing has developed whereby the IDB side of a trade is cleared and the non-member side of the trade is cleared bilaterally.

Resources

TreasuryDirect Home Page

References

  1. U.S. Treasury Securities. Finweb.
  2. Yields still near historic lows after Citi bailout. Reuters.
  3. Do You Know How Your Treasury Trades Are Cleared and Settled?. New York Federal Reserve.