November 22, 2022

CFTC Chair Highlights Trends in Treasury Futures Markets

Steven Lofchie Commentary by Steven Lofchie

CFTC Chair Rostin Behnam considered trends in the U.S. Treasury market amidst levels of extreme volatility coupled with record trading volume on global platforms. His comments focused on two topics: (1) trends in Treasury futures markets; and (2) market participants' need for access to US Treasury securities to post as collateral.

In his remarks at the 2022 U.S. Treasury Marked Conference, hosted by the Federal Reserve Bank of New York, Mr. Behnam highlighted trends seen in data collected by the CFTC on the US Treasury futures markets. He noted that, in the past year, asset managers' demand for long positions in Treasury futures has increased, with the offsetting short positions held by a broad group of hedge funds, dealers and "other market participants." He noted that FSOC and the CFTC Office of the Chief Economist are in process of considering the current market dynamics and highlighted joint work between the CFTC and Fed on this topic. He noted that initial staff analysis has seen that dealer inventory has substantially increased in the past year and that "observers have suggested that clearing can help reduce the risk of mistimed cash flows."

Mr. Behnam also highlighted trends in cleared derivatives markets and the fact that the margin held at CCP is currently at high levels, particularly as to the amount of U.S. Treasuries posted. He said the CFTC continues to consider potential policy responses while highlighting a recent SEC proposal to subject additional US Treasury transactions to mandatory clearing. He added that mandatory clearing raises its own challenges, and highlights the need for regulators to continually re-evaluate their models.

Commentary

Nothing in Mr. Benham's statement would seem to explain why SEC Chair Gary Gensler perceives a need to reshape the Treasury market.

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