Big Banks Hold Flash Boys at Bay With Grip on Treasuries Trading

(Bloomberg) -- High-frequency traders haven’t taken over Treasuries, according to data just released by a senior U.S. government debt manager, a sign banks still call the shots in the world’s largest bond market.

These automated market makers have bought and sold about $140 billion of Treasuries a day since April, 20% of total volume, Deputy Treasury Secretary Justin Muzinich said Monday during a speech in New York. These companies -- the U.S. calls them “principal trading firms,” or PTFs -- are dwarfed by the trading dealers do with their customers and each other.

Michael Lewis’s 2014 book, “Flash Boys,” and articles through the years have shown high-frequency traders have spread most everywhere in finance. And while they dominate some assets like stocks, the Treasury market is a major exception.

Popular interest in algorithmic trading and the PTFs that do it has overshadowed “how large and significant” the dealer-to-customer segment still is, Muzinich said at the Federal Reserve Bank of New York’s annual U.S. Treasury Market Conference.

That said, PTFs do much of the business on the electronic venues where they mostly trade, accounting for about 60% of the volume there in April through August, Muzinich said. About 30% of the volume had PTFs on both sides of the trade, with an additional 55% having a PTF on one side.

In general, the interdealer market handles larger volumes in actively traded bonds -- those dubbed on-the-run -- than the dealer-to-customer market. For off-the-run securities -- older bonds -- more of those trades are done dealer-to-customer. Of the $3 trillion of nominal notes and bonds traded during the week ended Aug. 30, $2.14 trillion (71%) were on-the-run issues, while $861.7 billion (29%) were off-the-run.

“Treasury believes that a better understanding of how much volume is passing through the market, particularly in off-the-runs, should encourage even greater interest in those securities,” Muzinich said.

Treasury Weekly Volumes in $billions, week of Aug. 30, 2019
InterdealerDealer-to-CustomerTotal
BILLs137.7338.2475.9
FRNs2.18.810.9
Nominal Coupons1,727.01,274.33,001.3
<=2yrs356.2299.0655.1
On-the-run270.5131.5401.9
Off-the-run85.7167.5253.2
>2 yrs and <=3yrs193.6113.6307.3
On-the-run166.767.0233.7
Off-the-run26.946.673.5
>3yrs and <=5yrs509.4370.7880.0
On-the-run432.9229.3662.2
Off-the-run76.5141.3217.8
>5yrs and <=7yrs154.3112.3266.6
On-the-run126.052.4178.4
Off-the-run28.359.988.2
>7yrs and <=10yrs388.5222.2610.8
On-the-run357.4170.9528.3
Off-the-run31.251.382.4
>10yrs124.9156.6281.5
On-the-run83.351.6134.9
Off-the-run41.6105.0146.6
TIPS22.838.861.6
<=5yrs9.616.726.4
On-the-run6.85.812.7
Off-the-run2.810.913.7
>5yrs and <=10yrs9.613.723.3
On-the-run8.05.613.6
Off-the-run1.68.19.7
>10yrs3.68.311.9
On-the-run2.94.87.8
Off-the-run0.73.54.1
Total1,889.51,660.23,549.7

Source: U.S. Treasury Department

©2019 Bloomberg L.P.

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