NEW YORK, July 12 The U.S. Treasury is asking
primary dealers in the U.S. government bond market if they have
any advice over how to mitigate liquidity issues that have
emerged in inflation-linked bonds and in the $5 trillion
repurchase agreement market.
U.S. Treasuries Inflation-Protected Securities (TIPS) were
pummeled after Federal Reserve Chairman Ben Bernanke said in
June that the central bank may start paring back its bond
purchases this year. Traders said that weakness was exacerbated
by the debt's relative illiquidity and because everyone headed
for the exits at the same time.
The Treasury is now asking dealers to comment on the supply
and demand dynamics in the TIPS market, and say whether they
have any advice that could help demand for the debt in its
auctions and improve liquidity in secondary trading of the
bonds, the survey showed on Friday.
The question is part of the Treasury's regular questionnaire
of its 21 primary dealers before it announces its quarterly
The Treasury is also asking for comments about an uptick in
settlement problems relating to 10-year notes trading in the
repo market. Some traders have scrambled to obtain these notes
in recent weeks, resulting in the debt trading at very negative
levels and in some cases failing to settle.
Persistent negative rates can be disruptive to lending in
Dealers are being asked to comment on whether they think the
issues will persist, and if there is anything that the Treasury
could do to prevent or mitigate the problems.