Treasury market volatility the unusual price swings of october 15, 2014

GOVERNMENT PROCEDURES AND OPERATIONS TREASURY MARKET VOLATILITY THE UNUSUAL PRICE SWINGS OF OCTOBER 15, 2014 No part of this digital document may be reproduced, stored in a retrieval system or transmitted in any form or by any means The publisher has taken reasonable care in the preparation of this digital document, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions No liability is assumed for incidental or consequential damages in connection with or arising out of information contained herein This digital document is sold with the clear understanding that the publisher is not engaged in rendering legal, medical or any other professional services GOVERNMENT PROCEDURES AND OPERATIONS Additional books in this series can be found on Nova’s website under the Series tab Additional e-books in this series can be found on Nova’s website under the e-book tab GOVERNMENT PROCEDURES AND OPERATIONS TREASURY MARKET VOLATILITY THE UNUSUAL PRICE SWINGS OF OCTOBER 15, 2014 LEWIS COLLINS EDITOR New York Copyright © 2016 by Nova Science Publishers, Inc All rights reserved No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical photocopying, recording or otherwise without the written permission of the Publisher We have partnered with Copyright Clearance Center to make it easy for you to obtain permissions to reuse content from this publication Simply navigate to this publication’s page on Nova’s website and locate the “Get Permission” button below the title description This button is linked directly to the title’s permission page on copyright.com Alternatively, you can visit copyright.com and search by title, ISBN, or ISSN For further questions about using the service on copyright.com, please contact: Copyright Clearance Center Phone: +1-(978) 750-8400 Fax: +1-(978) 750-4470 E-mail: info@copyright.com NOTICE TO THE READER The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions No liability is assumed for incidental or consequential damages in connection with or arising out of information contained in this book The Publisher shall not be liable for any special, consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, or reliance upon, this material Any parts of this book based on government reports are so indicated and copyright is claimed for those parts to the extent applicable to compilations of such works Independent verification should be sought for any data, advice or recommendations contained in this book In addition, no responsibility is assumed by the publisher for any injury and/or damage to persons or property arising from any methods, products, instructions, ideas or otherwise contained in this publication This publication is designed to provide accurate and authoritative information with regard to the subject matter covered herein It is sold with the clear understanding that the Publisher is not engaged in rendering legal or any other professional services If legal or any other expert assistance is required, the services of a competent person should be sought FROM A DECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THE AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS Additional color graphics may be available in the e-book version of this book Library of Congress Cataloging-in-Publication Data ISBN:  (eBook) Published by Nova Science Publishers, Inc † New York CONTENTS Preface Chapter Chapter Index vii Joint Staff Report: The U.S Treasury Market on October 15, 2014 Staff of the U.S Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S.Securities and Exchange Commission, and the U.S Commodity Futures Trading Commission How Treasury Issues Debt Grant A Driessen 85 113 PREFACE The U.S Treasury market is the deepest and most liquid government securities market in the world It plays a critical and unique role in the global economy, serving as the primary means of financing the U.S federal government and acting as a significant investment instrument and hedging vehicle for global investors, among other uses On October 15, 2014, the market for U.S Treasury securities, futures, and other closely related financial instruments experienced unusually large price swings, including a very rapid roundtrip during a 12-minute interval This volatility occurred despite the absence of any particular financial or economic developments that might explain such large moves Such significant and unexplained volatility in the important U.S Treasury market called for more substantive analysis The staff of the Treasury Department, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S Securities and Exchange Commission, and the U.S Commodity Futures Trading Commission worked together to analyze data from the three main trading venues for the Treasury market in the creation of this report This book provides an overview of the U.S Treasury market, liquidity, and applicable regulations It explores the events of October 15, including the two defining traits of the day—the unusually high volatility and round-trip in prices despite the lack of an obvious driver, and the strains in liquidity conditions especially during the event window; discusses the key findings from the analysis of participant-level transaction data, with a particular focus on the period leading up to and including the most volatile period of the day, the 9:33 to 9:45 a.m ET event window; reviews broad changes to the structure of the Treasury market over the past two decades; and explains the events of October 15 underscore the importance of efforts by the official and private sectors to viii Lewis Collins understand more fully the implications of the evolving Treasury market structure for liquidity, trading and risk management practices, data access, and monitoring and surveillance In: Treasury Market Volatility Editor: Lewis Collins ISBN: 978-1-63484-297-6 © 2016 Nova Science Publishers, Inc Chapter JOINT STAFF REPORT: THE U.S TREASURY MARKET ON OCTOBER 15, 2014* Staff of the U.S Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S.Securities and Exchange Commission, and the U.S Commodity Futures Trading Commission EXECUTIVE SUMMARY The U.S Treasury market is the deepest and most liquid government securities market in the world It plays a critical and unique role in the global economy, serving as the primary means of financing the U.S federal government, a significant investment instrument and hedging vehicle for global investors, a risk-free benchmark for other financial instruments, and an important market for the Federal Reserve’s implementation of monetary policy On October 15, 2014 (“October 15”), the market for U.S Treasury securities, futures, and other closely related financial markets experienced an unusually high level of volatility and a very rapid round-trip in prices * This is an edited, reformatted and augmented version of a report issued by the U.S Department of the Treasury, July 13, 2015 104 Grant A Driessen financing needs over the short to intermediate term and reduce the uncertainty surrounding interest rates over the long-term.49 Effectively, this should reduce risk and ensure adequate financing over the long term, while increasing average maturity BUDGETARY IMPACTS Legislative activity can affect Treasury’s ability to issue debt and can impact the budget process The statutory limit on the debt can constrain debt operations, and, in the past, has hampered traditional practices when the limit was approached The accounting of asset purchases in the federal budget has created differences between how much debt Treasury has to borrow to purchase assets and how much the same purchases will impact the budget deficit If budget deficits continue to rise, thereby requiring devotion of more resources to paying interest on the debt, fewer funds are available to spend on other federal programs, all else equal Some economists have expressed concerns that persistent deficits could drive up interest rates, making it more expensive for the government, businesses, and consumers to borrow money The government cannot add infinitely to the national debt without facing market consequences or hindering future ability to borrow In recent testimony to Congress, Federal Reserve Chairman Janet Yellen warned that failing to address the government’s growing debt will likely cause the U.S to face in higher interest rates, lower levels of investment, and reduced productivity growth in future years than it otherwise would have with more manageable levels of federal debt.50 Constraints of the Debt Limit Congress sets a statutory limit on federal debt levels in an effort to assert its constitutional prerogatives to control spending and impose a form of fiscal accountability At times, the debt limit has restricted the Treasury’s ability to manage the federal government’s finances Standard methods of financing federal activities or meeting government obligations can be hobbled when federal debt nears its legal limit If the limit prevents the Treasury from issuing new debt to manage short-term cash flows or to finance an annual budget deficit, the government may be unable to obtain the cash it needs In recent years, when federal debt levels approached the statutory debt limit, Congress How Treasury Issues Debt 105 and the Treasury were compelled to intervene Such actions to stay under the debt limit included the authorization of a “debt issuance suspension period” and the implementation of “extraordinary measures” by the Treasury Secretary, and suspension of the statutory debt limit by Congress.51 Because the law requires that the government’s legal obligations be paid, the debt limit may prevent it from issuing the debt that would allow it to so While the debt limit has never caused the federal government to default on its obligations, at times it has added uncertainty to Treasury operations.52 Accounting of Recent Debt Increases In 1990, the Federal Credit Reform Act (FCRA; Title V of P.L 101-508 ) revamped the way that federal credit (direct loans and loan guarantees) are accounted for in the budget process Before the creation of this law, asset purchases were recorded on a purchase price or net cash flow basis If a subsequent sale led the government to recoup some of their investment, that would be recorded in a later fiscal year as negative outlays Beginning in FY1992, asset purchases were recorded on an accrual basis, which reported the budgetary cost of a credit program equal to the estimated subsidy costs at the time the credit is provided The subsidy cost was defined as “the estimated long-term cost to the government of a direct loan or a loan guarantee, calculated on a net present value basis, excluding administrative costs.”53 Accounting under FCRA became a more prominent issue due to the federal financial interventions and resulting loans and asset purchases made by the federal government to stabilize the economy during the most recent recession Because the ultimate value of these assets once they were sold was unknown, the ultimate increase in the federal debt as a result of these interventions was also unknown Asset purchases financed under the Troubled Asset Relief Program (TARP; P.L 110-343 ) required outlays to equal the purchase price, which increased the debt held by the public by the same amount Subsequent proceeds from government sales of those assets are returned to the Treasury’s General Fund, thereby decreasing the federal debt However, the budgetary impact of this program was somewhat different The TARP law (Title II of Division A) contained a provision which required budgetary accountability for these asset purchases to follow the provisions of FCRA with an additional adjustment for market risk This means that for budgetary purposes, the cost of these purchases was recorded on a subsidy basis, which takes into account the asset’s expected return What the 106 Grant A Driessen government paid to purchase the assets led to an increase in the debt held by the public, in the amount of the purchase price, that exceeded the increase in the budget deficit, the amount of the subsidy The most recent estimates project that the government’s financial intervention through TARP will result in total asset purchases of $440 billion ($427 billion of which had already been disbursed in March 2015) at a net cost to the government of $28 billion.54 Interest and the Debt Interest paid on the federal debt increases the overall cost of borrowing As discussed earlier, interest costs can be affected by various conditions, including legislative activity and the economy, as well as actions taken by the Treasury and the Fed The level of budget deficits and federal debt can also affect the interest rates on Treasury securities If interest rates are low, interest payments on Treasury securities may also be low, thereby making debt less costly However, increased borrowing will increase the supply of Treasury securities, which generally leads to higher interest rates and future net interest payments.55 Despite the recent increases in federal borrowing during the recent economic recession and subsequent recovery, the actions of the Fed have kept interest rates near zero since late 2008 Therefore, borrowing costs to the Treasury currently remain low When setting interest rates, the Fed considers potential effects on employment, prices, and long-term interest rate levels The Fed cited diminished economic growth and low levels of inflation in its decisions to keep interest rates low in FY2015 However, the Fed also suggested that it will raise interest rates in the near future if the economic recovery and reductions in underemployment continue.56 Interest payments are projected to match historically low levels both as a percentage of gross domestic product and as a percentage of total outlays even as overall debt is increasing Over the long term however, borrowing costs are projected to grow, likely leading to increasing interest payments CONCLUSION Part of Treasury’s mission is to secure America’s economic and financial future In part, this is achieved by maintaining a regular and predictable debt How Treasury Issues Debt 107 management strategy as well as ensuring global trust and confidence in U.S currency However, Treasury’s actions are affected by Congress, the Fed, and different types of investors, as well as economic conditions As long as the United States continues to issue Treasury securities to finance government operations, the actions of the Treasury will continue to play a key role in maintaining stability in the financial and credit markets and the U.S economy End Notes U.S Department of the Treasury, Duties & Functions of the U.S Department of the Treasury, available at http://www.treasury.ogv/about/role-of-treasury/ U.S Department of the Treasury, Office of Domestic Finance, Overview of U.S Treasury Debt Management, available at http://www.treasury.gov/about/organizational-structure/ offices/ Pages/-Debt-Management.aspx Tilford C Gaines, Techniques of Treasury Debt Management (New York: The Free Press of Glencoe, 1962), pp 19, 21, 154 The Treasury Franchise Fund provides common administrative support services to other parts of Treasury as well as other government agencies on a competitive and fully cost-reimbursable basis The collection of delinquent debt owed to the U.S government is collected by the Financial Management Service Department of the Treasury, Bureau of the Fiscal Service, Treasury Franchise Fund, Fy2016 President’s Budget, available at http://www treasury.gov/about/budget-performance/CJ16/22.%20TFF%20FY% 202016% 20CJ.pdf The Federal Reserve Bank of Minneapolis, Born of a Panic: Forming the Fed System, August 1988, http://www.minneapolisfed.org/publications/the-region/born-of-a-panic-forming-thefed-system History of the Federal Reserve, available at http://www.federalreserveeducation.org/about-thefed/history/ For more information, see CRS Report RS20826, Structure and Functions of the Federal Reserve System, by Marc Labonte Previously, debt was issued on an offering-by-offering survey of the market, whereby Treasury officials made decisions on what type of maturities to offer and when they should be offered based on anticipated needs Auctions were used during this time for certain types of securities and some predictability did exist Treasury bills had been issued on a regular basis for decades With the new strategy, Treasury began issuing notes and bonds on a sc1hedule as well Garbade, Kenneth D., The Emergence of “Regular and Predictable” as a Treasury Debt Management Strategy, FRBNY Economic Policy Review, March 2007, pp 54-55 Garbade, Kenneth D., The Emergence of “Regular and Predictable” as a Treasury Debt Management Strategy, FRBNY Economic Policy Review, March 2007, pp 54-55 10 Though auctions were the main component of the new strategy, Treasury had tried to institute an auction based system in 1935 and 1963 Both of these earlier attempts failed 11 12 There are no coupon rates for Treasury bills – bills are sold on a discount basis For bills and TIPS auctions, the bids are offered in terms of a discount rate rather than a yield 108 13 Grant A Driessen Garbade, Kenneth D and Jeffrey F Ingber, The Treasury Auction Process: Objectives, Structure, and Recent Adaptations, FRBNY Current Issues in Economics and Finance, February 2005, pp 2-3 14 Cash Management bills are occasionally offered in order to meet short- and medium-term cash needs as determined by Treasury These bills mature on dates determined by Treasury based on need, generally a few days from issue Occasionally, Treasury also offers reopenings of previous auctions where additional amounts of a previously issued security are sold at the same coupon interest rate and maturity, but with a different issue date and price 15 U.S Department of the Treasury, Treasury Bills, available at http://www.treasurydirect gov/instit/marketables/tills/ tbills.htm 16 Initial offerings of 10-year notes are currently auctioned in February, May, August and November Each initial offer is followed by two reopenings of the same issue in January, March, April, June, July, September, October, and December In a security reopening, the U.S Treasury issues additional amounts of a previously issued security The reopened security has the same maturity date and interest payment date as the original security, but has a different issue date and usually a different price U.S Department of the Treasury, Treasury Notes, available at http://www.treasury direct.gov/instit/marketables/tnotes/tnotes.htm 17 Initial offerings of 30-year bonds are currently auctioned in February, May, August, and November Each initial offer is followed by two reopenings in the two months following the initial auction U.S Department of the Treasury, Treasury Bonds, available at http://www.treasurydirect.gov/instit/marketables/tbonds/tbonds.htm 18 U.S Department of the Treasury, Treasury Inflation-Protected Securities, available at http://www.treasurydirect.gov/ instit/marketables/tips/tips.htm 19 U.S Department of the Treasury, Floating Rate Notes (FRNs) In Depth, available at https://www.treasurydirect.gov/ indiv/research/indepth/frns/res_frn.htm 20 U.S Department of the Treasury, Bureau of the Fiscal Service, Monthly Statement of Public Debt, August 2015, Tables I, available at https://www.treasurydirect gov/govt/ reports/pd/mspd/2015/opds082015.pdf 21 U.S Department of the Treasury, Bureau of the Fiscal Service, Monthly Treasury Statement, August 2015, Table – Schedule D, available at https://www.fiscal treasury.gov/fsreports/rpt/mthTreasStmt/mts0815.pdf 22 Such offerings of Treasury securities dated back to 1776 Between 1776 and 1935, these securities were marketable and subjected the investor to market fluctuation Particularly during World War I, small investors incurred significant losses if they were forced to sell their bonds prior to maturity 23 The trust funds now hold only special issues, but they have held public issues in the past 24 The specifications for securities issued to each type of trust fund are listed in separate places in the U.S Code Specifications for the Social Security Trust Fund can be found in 42 USC §401 Specifications for the Civil Service Retirement and Disability Fund can be found in USC §8348 25 Federal Reserve, St Louis Branch, U.S Treasury securities held by the Federal Reserve: All Maturities, available at https://research.stlouisfed.org/fred2/series/TREAST How Treasury Issues Debt 26 27 109 Currency, not Treasury securities, is the Fed’s primary liability Treasury securities are assets to the Fed For more information on the Fed’s activities, see CRS Report RL34427, Financial Turmoil: Federal Reserve Policy Responses, by Marc Labonte The federal funds rate is linked to the interest rates that banks and other financial institutions charge for loans – or the provision of credit Thus, while the Fed may directly influence only a very short term interest rate, this rate influences other longer term rates However, this relationship is far from being on a one-to-one basis since the longer term market rates are influenced not only by what the Fed is doing today, but what it is expected to in the future and what inflation is expected to be in the future For more information, see CRS Report RL30354, Monetary Policy and the Federal Reserve: Current Policy and Issues for Congress, by Marc Labonte 28 A list of current primary dealers can be found at http://www.newyorkfed.org/ markets/pridealers_listing.html 29 Purchases by primary dealers can be found at http://www.treasurydirect.gov/instit/ annceresult/auctdata/auctdata_stat.htm 30 Auction results are available at http://www.treasurysecurities.gov/RI/OFGateway and http://www.treas.gov/offices/domestic-finance/debt-management/investor_class_ auction.shtml For an analysis of bidder category and investor class data, see Fleming, Michael J., Who Buys Treasury Securities at Auction?, FRBNY Current Issues in Economics and Finance, January 2007 31 Garbade, Kenneth D and Jeffrey F Ingber, The Treasury Auction Process: Objectives, Structure, and Recent Adaptations, FRBNY Current Issues in Economics and Finance, February 2005, p 32 Data on Treasury fails back to July 1990 are available on the FRBNY’s website at http://www.newyorkfed.org/ markets/pridealers_failsdata.html Settlement fails are reported on a cumulative basis For example, if a dealer fails to deliver $50 million in securities on the agreed upon date, but makes the delivery one day late, the fail is recorded at $50 million However, if the $50 million is delivered days late, the fail is valued at $200 million ($50m x 4) For more information, see Fleming, Michael J and Kenneth D Garbade, Explaining Settlement Fails, FRBNY Current Issues in Economics and Finance, September 2005 33 Katy Burne, “Pressure in Repo Market Spreads ,” The Wall Street Journal, April 2, 2015 34 U.S Department of the Treasury, available at http://www.treasury.gov/about/role-oftreasury/Pages/default.aspx 35 U.S Department of the Treasury, Strategic Plan: Department of the Treasury, Fiscal Years 2014-2017 36 For additional historical analysis of federal debt levels, see CRS Report RL34712, The Federal Debt: An Analysis of Movements from World War II to the Present, by Mindy R Levit 37 See http://www.treasurydirect.gov/ Debt information typically lags the current business day by one to two business days 38 Current issues of the DTS and MTS, respectively, can be found at http://fms treas.gov/ dts/index.html and http://fms.treas.gov/mts/index.html 110 Grant A Driessen 39 The current issue of the MSPD can be found at http://www.treasurydirect.gov/ govt/reports/pd/mspd/mspd.htm 40 Data on major foreign holders of Treasury securities by country is available at http://www.treas.gov/tic/ ticsec2.shtml#ussecs 41 Bureau of the Fiscal Service, “DTS Archive,” available at https://fms.treas.gov/ fmsweb/DTSFilesArchiveAction.do 42 U.S Department of the Treasury, Bureau of the Fiscal Service, Treasury Bulletin, September 2015, Table OFS-2, available at https://www.fiscal.treasury.gov/ fsreports/rpt/treasBulletin/current.htm For more information about foreign ownership of Treasury securities, see CRS Report RS22331, Foreign Holdings of Federal Debt, by Marc Labonte and Jared C Nagel 43 Dupont, Dominique and Brian Sack, The Treasury Securities Market: Overview and Recent Developments, Federal Reserve Board, Federal Reserve Bulletin, December 1999, pp 792-793, available at http://www.federalreserve.gov/ pubs/bulletin/1999/ 1299lead.pdf 44 Federal Reserve Bank of San Francisco, What is a yield curve, and how you read them? How has the yield curve moved over the past 25 years?, July 2004, available at http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2004/04 07.html 45 For more information, see CRS Report RS22371, The Pattern of Interest Rates: Does It Signal an Impending Recession?, by Marc Labonte and Gail E Makinen 46 For information on the methodology used to calculate the constant maturity yields, see http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield shtml 47 Dupont, Dominique and Brian Sack, The Treasury Securities Market: Overview and Recent Developments, Federal Reserve Board, Federal Reserve Bulletin, December 1999, pp 793-794, available at http://www.federalreserve.gov/pubs/bulletin/ 1999/ 1299lead.pdf 48 U.S Congress, House Committee on Financial Services, Monetary Policy and the State of the Economy, 114th Cong., July 15, 2015, testimony available at http://www federalreserve.gov/newsevents/testimony/yellen20150715a.htm 49 Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association, April 29, 2009, available at http://www.treas.gov/press/releases/tg111.htm 50 U.S Congress, House Committee on Financial Services, Monetary Policy and the State of the Economy, 114th Cong., July 15, 2015 51 For more information on recent debt limit activity, see CRS Report R43389, The Debt Limit Since 2011, by D Andrew Austin 52 For more information, see CRS Report RL31967, The Debt Limit: History and Recent Increases, by D Andrew Austin 53 For more information, see CRS Report R42632, Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and Issues for Congress, by Mindy R Levit 54 Congressional Budget Office, Report on the Troubled Asset Relief Program – March 2015, available at https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/ 50034-TARP.pdf How Treasury Issues Debt 55 56 111 For more information, see CRS Report RS22354, Interest Payments on the Federal Debt: A Primer, by Thomas L Hungerford For more information on recent interest rate decisions of the Federal Reserve, please see Federal Reserve, Why are interest rates being kept at a low level?, April 2015, available at http://www.federalreserve.gov/faqs/ money_12849.htm INDEX A access, viii, 7, 10, 52, 57, 69, 70, 79 accountability, 86, 104, 105 accounting, 6, 27, 32, 39, 49, 86, 104 adjustment, 105 administrative support, 107 adverse effects, 87 agencies, 8, 9, 69, 85, 87, 88, 96, 107 algorithm, 31, 48, 82 appropriations, 88, 96 arbitrage, 78, 92 assessment, 7, 66, 69 assets, 18, 54, 55, 59, 104, 105, 106, 109 audit, 10, 11 authorities, 8, authority, 8, 9, 68, 88 automation, 67, 68 automobiles, 13, 81 B Baby Boomer generation, 87 balance sheet, 11, 53 banking, 89 banking sector, 89 bankruptcy, 95 banks, 4, 69, 89, 93, 98, 109 basis points, 2, 3, 14, 16, 81 behaviors, 20 benchmarks, 67 beneficiaries, 87, 96 benefits, 67, 86, 89, 96 bilateral, 10 bonds, 81, 86, 88, 89, 90, 91, 92, 95, 97, 103, 107, 108 breakdown, 30 budget deficit, 57, 85, 86, 89, 104, 106 business model, 11, 71 businesses, 96, 104 buyer(s), 5, 27, 30, 31, 46, 49, 50 C capital markets, 88 cash, 2, 3, 4, 5, 7, 10, 11, 13, 14, 20, 22, 23, 24, 25, 27, 30, 32, 33, 35, 39, 41, 43, 46, 47, 48, 49, 50, 51, 52, 56, 59, 66, 68, 69, 70, 74, 75, 78, 79, 80, 81, 82, 84, 92, 94, 95, 96, 97, 102, 104, 105, 108 cash flow, 104, 105 catalyst, 2, 14 category a, 81, 109 category d, 94 causal relationship, central bank, 59, 81 challenges, 67, 87 Chicago, 10, 75 Chicago Mercantile Exchange, 10 citizens, 94 114 Index classes, 17 classification, 11, 81 clients, 53, 56, 71 color, iv commercial, 82, 97 commercial bank, 98 commodity, commodity futures, compensation, 102 composition, 52, 94, 97 computer, 52 conference, 67 congress, 110 Congress, iv, 8, 9, 85, 86, 87, 88, 96, 104, 107, 109, 110 Congressional Budget Office, 110 Constitution, 88 consumer price index, 91 consumers, 104 cooperation, 69 coordination, 66 cost, 3, 6, 7, 8, 67, 85, 87, 88, 99, 105, 106, 107 CPI, 91 credit market, 95, 96, 107 credit rating, 81 currency, 107 customer relations, 56 customers, 11, 53, 80, 83 D damages, iv debts, 95 decision-making process, 85, 87, 88 deficit, 102 deflation, 4, 17, 91 Department of Justice, 81 Department of the Treasury, 84, 107, 109 deposit accounts, 89 depository institutions, 97 deposits, 93, 97 depth, 3, 5, 6, 8, 14, 20, 30, 33, 34, 35, 39, 43, 47, 51, 60, 66, 79, 81, 83, 84 derivatives, 19, 68, 80, 84 detection, 52 direct measure, 83 dispersion, 60 distribution, 18 diversity, 69 Dodd-Frank Wall Street Reform and Consumer Protection Act, drawing, 81 E economic development, vii economic downturn, 96, 102 economic growth, 18, 96, 99, 106 education, 110 employment, 106 enforcement, 8, 9, 10, 68 environment, 4, 17, 18, 31, 57, 63, 67, 86, 89 equities, 17, 69 equity, 53, 78, 81 equity market, 78, 81 erosion, 43 Eurodollar, 9, 10, 18, 19, 76 European Central Bank, 4, 17 evidence, 5, 21, 27, 31, 35, 51, 55, 59, 78, 83 evolution, 7, 66 execution, 47, 52, 78, 80, 81, 83, 84, 91 exposure, 18, 19, 31, 32, 33, 34, 53, 56, 80, 82 F faith, 86, 98 fat, 9, 42 federal agency, 93 federal funds, 93, 102, 109 federal government, vii, 1, 57, 86, 88, 89, 90, 95, 96, 102, 104, 105 Federal Reserve, v, vii, 1, 2, 52, 54, 58, 61, 83, 84, 88, 93, 94, 95, 97, 101, 102, 104, 107, 108, 109, 110, 111 Federal Reserve Board, 54, 58, 61, 101, 110 115 Index financial, vii, 1, 9, 17, 43, 53, 54, 57, 59, 60, 67, 68, 78, 79, 84, 86, 87, 88, 89, 94, 95, 96, 99, 105, 106, 109 financial crisis, 9, 17, 57, 59, 60 financial institutions, 9, 53, 59, 84, 94, 109 financial markets, 1, 67, 79, 89 financial reports, 96 financial stability, 95 financial system, 53 fiscal policy, 89 fiscal year, 96, 97, 98, 102, 105 fixed rate, 91 fluctuations, 93 foreign exchange, 17 formation, 8, 19 formula, 93 fraud, 9, 79 fundamental forces, funding, 96 funds, 4, 18, 27, 48, 52, 58, 59, 69, 85, 86, 87, 92, 93, 94, 95, 96, 98, 102, 104 House, 102, 110 hypothesis, 75 I GDP, 97, 98 global economy, vii, global markets, 88 government securities, vii, 1, 7, 8, 9, 66, 68, 69, 80, 89, 93 governments, 87, 92 gross domestic product, 106 growth, 4, 6, 17, 19, 52, 53, 55, 57, 59, 67, 88, 96 GSA, 3, 8, 9, 68, 80 guidance, 81 guidelines, 81, 95 idiosyncratic, 79 imbalances, 5, 41, 50 IMF, 4, 18 improvements, 85, 87, 88 incidence, 6, 8, 49, 74 income, 6, 11, 13, 14, 53, 60, 63, 83, 86, 96, 98 income tax, 96 independence, 93 individuals, 87, 88, 96, 98 industry, 59, 67, 68, 83 inflation, 10, 80, 86, 88, 90, 91, 99, 101, 106, 109 information sharing, 70 initiation, 102 injury, iv institutions, 88, 93 integrity, 79 interagency coordination, 7, 70, 83 interest rates, 3, 4, 12, 13, 17, 18, 78, 81, 87, 88, 92, 93, 94, 99, 100, 102, 104, 106, 109, 111 intermediaries, 51, 94 intervention, 52, 106 investment(s), vii, 1, 11, 59, 67, 71, 86, 92, 93, 94, 98, 104, 105 investors, vii, 1, 4, 6, 18, 19, 51, 59, 63, 67, 71, 83, 86, 87, 89, 91, 92, 94, 95, 98, 99, 102, 107, 108 issues, 10, 51, 67, 70, 80, 88, 96, 102, 103, 108, 109 H K G health, 87 health care, 87 health care costs, 87 hedging, vii, 1, 31, 43 history, 2, 22, 80, 101, 107 kill, L latency, 5, 46, 47, 71, 75, 82 116 Index laws, legality, 82 legislation, 88 lending, 94 lens, light, 20, 51, 66 liquidity, vii, 2, 3, 5, 6, 7, 8, 11, 14, 16, 20, 27, 33, 35, 41, 43, 50, 51, 52, 53, 56, 57, 59, 60, 63, 65, 66, 67, 68, 69, 71, 78, 81, 83, 86, 87, 94, 95, 98, 102 loan guarantees, 105 loans, 105, 109 local government, 89, 92, 98 long-term debt, 102 M magnitude, 2, 14, 59, 82 majority, 6, 10, 39, 52, 81 management, 9, 53, 59, 85, 86, 87, 88, 89, 102, 107, 109, 110 manipulation, 9, 79 market concentration, 81 market position, 80 market share, 81 market structure, viii, 2, 6, 7, 20, 66, 67, 70 marketplace, 53, 86 matter, iv measurement, 53, 65, 81 median, 13, 71 Medicare, 92, 97, 103 membership, 52, 79 messages, 23, 45, 46, 47 methodology, 110 Minneapolis, 107 mission, 9, 70, 106 modernization, 89 modifications, 22 monetary policy, 1, 3, 7, 67, 80, 89, 93, 94 money supply, 89, 94 MTS, 97, 109 multiples, 91 N national debt, 89, 104 neutral, 30, 32 O Office of Management and Budget, 98 officials, 103, 107 OFS, 110 open market operations, 89, 93 operations, 52, 85, 86, 87, 93, 102, 104, 105, 107 opportunities, 75, 78 oversight, 9, 70 ownership, 6, 47, 57, 59, 82, 83, 94, 97, 110 P parallel, 57 participants, 5, 7, 8, 9, 11, 14, 16, 18, 21, 22, 27, 34, 42, 43, 47, 51, 52, 53, 57, 59, 63, 65, 66, 67, 68, 69, 78, 80, 82, 83, 85, 87, 95 permission, iv platform, 10, 46, 47, 69, 75, 82, 84 policy, 2, 83, 87, 88, 90, 93, 94 policymakers, 89 portfolio, 59, 85, 87 predictability, 86, 89, 107 preparation, iv present value, 105 President, 103, 107 prevention, 9, 82 price changes, 64, 65, 99, 100 price competition, 82 principles, 68, 85, 87, 88 private sector, vii, 7, 9, 67, 87, 95 private sector investment, 87 productivity growth, 104 professionals, 88 profit, 17, 18, 53 profitability, 56 project, 96, 106 117 Index public debt, 80, 88, 96, 102 R rate of return, 90, 99 real rate of interest, 80 real time, 82 recession, 95, 101, 105, 106 recommendations, iv, 83, 95 recovery, 87, 103, 106 reform, 105 regulations, vii, 2, 10, 55, 68, 83 regulatory agencies, 67, 68 regulatory changes, 53, 83 regulatory framework, regulatory requirements, 7, 66, 68, 80 repo, 69, 95 requirement, 68, 92 requirements, 68, 79, 80, 90, 96, 103 resale, 93 reserves, 93 resolution, 47 resources, 70, 86, 104 response, 4, 13, 17, 47, 65, 78, 81, 83, 95, 96 response time, 47 restrictions, 70, 71 retail, 3, 5, 13, 19, 27, 34, 71, 81 retirement, 58, 87, 94 revenue, 86, 88, 95, 96 rights, iv risk(s), viii, 1, 4, 5, 6, 7, 9, 16, 17, 18, 20, 33, 34, 41, 52, 53, 55, 56, 57, 65, 66, 67, 68, 69, 78, 79, 80, 82, 83, 84, 86, 92, 96, 98, 99, 102, 104, 105 risk factors, 18 risk management, viii, 7, 9, 41, 57, 65, 66, 67, 68, 83 risk taking, 55 risk-taking, 53, 55, 83 rules, 8, 9, 68, 80, 82, 83 S safe haven, 18 safety, 98 savings, 89, 92, 97 scope, Secretary of the Treasury, 88, 110 securities, vii, 1, 2, 3, 7, 8, 9, 10, 12, 18, 31, 41, 47, 52, 58, 59, 60, 61, 66, 68, 69, 70, 79, 80, 82, 83, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 97, 98, 99, 100, 101, 102, 103, 106, 107, 108, 109, 110 security, 2, 3, 10, 14, 54, 55, 57, 63, 80, 81, 82, 85, 87, 90, 91, 93, 94, 95, 99, 100, 102, 108 seller(s), 5, 27, 30, 46, 49, 50 sensitivity, 11 services, iv, 59, 69, 79, 88, 89, 107 severe stress, 43 shape, 99 short-term interest rate, 18, 93, 99 signals, 78 signs, Social Security, 92, 96, 103, 108 specifications, 108 spending, 85, 86, 87, 88, 104 Spring, 84 stability, 89, 107 standard deviation, 17, 81 state, 6, 66, 89, 92, 98 statistics, 11, 70, 71 stress, 63 structural changes, 59, 67 structure, vii, 2, 6, 8, 9, 10, 11, 51, 67, 68, 107 subscribers, 82 subsidy, 105 suppliers, 53 support services, 88 surplus, 103 surveillance, viii, 7, 9, 10, 66, 70, 83 symmetry, 31 118 Index T U target, 93 taxes, 93 taxpayers, 7, 87 techniques, 79, 88 technology, 57 time frame, 69 time periods, 47 Title I, 105 Title II, 105 Title V, 105 trade, 3, 6, 7, 9, 10, 11, 14, 15, 27, 30, 31, 33, 41, 42, 43, 47, 49, 56, 64, 65, 67, 68, 69, 71, 79, 80, 81, 82 traditional practices, 86, 104 traits, vii, transaction costs, 3, 35 transactions, 4, 5, 7, 8, 10, 12, 14, 20, 35, 49, 51, 53, 68, 69, 78, 80, 82, 95 transmission, 69, 79 transparency, 65, 68, 85, 86, 87, 88, 89 Treasury, 1, iii, v, vii, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 25, 30, 35, 44, 45, 46, 47, 51, 52, 54, 55, 56, 57, 58, 59, 60, 61, 62, 65, 66, 67, 68, 69, 70, 71, 78, 79, 80, 81, 82, 83, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110 Treasury bills, 80, 86, 88, 89, 90, 91, 92, 107 Treasury Secretary, 87, 88, 95, 105 trust fund(s), 86, 92, 97, 108 trust funds, 86, 92, 97, 108 turnover, 72, 83 U.S Department of the Treasury, v, 1, 2, 83, 85, 86, 107, 108, 109, 110 U.S economy, 18, 107 U.S Treasury, v, vii, 1, 2, 3, 7, 8, 10, 11, 13, 18, 51, 66, 67, 68, 69, 70, 99, 107, 108 United States, 9, 54, 81, 85, 86, 87, 88, 89, 99, 107 urban, 91 V variations, 63, 96 venue, 69 volatility, vii, 1, 2, 3, 4, 5, 6, 8, 11, 13, 14, 17, 18, 20, 27, 33, 35, 51, 56, 59, 63, 65, 75, 83, 86, 95, 99 W war, 97 wealth, 59 web, 89 World Bank, 4, 18 World War I, 89, 108, 109 Y yield, 2, 14, 16, 53, 60, 61, 81, 89, 90, 91, 93, 95, 99, 100, 107, 110 ... Report: The U.S Treasury Market on October 15, 2014 Staff of the U.S Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S.Securities... “futures” market) Section of the report explores the events of October 15, including the two defining traits of the day the unusually high volatility and round-trip in prices despite the lack of an... analysis of the conditions that contributed to the events of October 15 and the structure of this important market This report has been prepared by the staff of the U.S Department of the Treasury (Treasury) ,