“The more the US government borrows (US$2.6 trillion in January), the more US Treasury traders trade.”
This activity, according to Coalition Greenwich’s Kevin McPartland, is what drove the average daily notional volume (ADNV) of US$891 billion in January, up 46% year-on-year (YoY).
While volumes were still higher at month end and for economic data releases, the spikes were more muted. The strong market-wide volumes paved the way for nearly $500 billion to trade electronically in the month, nearly a record, according to Coalition Greenwich report, February Data Spotlight: U.S. Rates Trading.
Bloomberg, BGC’s Fenics and Tradeweb all had record months from an ADNV perspective, with buy-side activity continuing to drive the market forward.
While trading between dealers constituted only 25% of January’s volume, their US Treasury holdings continue to grow. At month end, the average of dealer net positions in January was US$225 billion, up 42% YoY.
Kevin McPartland, author of the report, and head of market structure at Coalition Greenwich, said, “Whereas Treasury securities proved to be a liability the last two years as rates rose, they are increasingly looking like a smart investment as rates are expected to decline. Most of the position growth has come in bills and notes with maturities below two years, and between three and six years. Holdings of both are at current cycle highs.”
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