Ellen Correia Golay on All-to-All Trading and Treasury Market Liquidity

Ellen Correia Golay is a lead Treasury advisor in the markets group at the Federal Reserve Bank of New York. Ellen returns to the program to discuss the lessons of the March 2020 “dash for cash,” how all-to-all trading and other market structure reforms could strengthen Treasury market liquidity and resilience, the rise of principal trading firms, and the future of the Fed’s standing repo operations, and much more.

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This episode was recorded on August 19th, 2026

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I’m glad you decided to join us.

Our guest today is Ellen Correia Golay. Ellen is a lead Treasury advisor in the markets group at the Federal Reserve Bank of New York. She’s also a previous guest, so be sure to go back and check out her previous episode. She joins us today to discuss all things Treasury market and her ongoing work in that project. Ellen, welcome back to the show.

Ellen Correia Golay: Thanks, David. I’m so happy to be back.

Beckworth: Well, it’s great to have you on. We’ve had a number of your colleagues on the show, so it was time to bring you back. Now, last time you came on, I believe was in 2024, and we talked about what you did there, but I want to go back to that because you’re this senior lead advisor in Treasury markets. A lot of interesting things happening. We’ll talk about some of them today. I’m sure you’re very busy, but also it’s very interesting to do what you do. Let me begin with this. You’re an advisor, but you also lead the Treasury Markets Practice Group. Is that right?

Ellen’s Career and Responsibilities

Golay: That’s right. Before I go any further, let me just say the standard Fed disclaimer. The views I’m going to express today are my own, and not those of the Federal Reserve Bank of New York or the Federal Reserve System. Yes, my role is I’m an advisor in the Treasury markets area in the markets group here at the New York Fed. I do a few things. I provide senior subject matter expertise on Treasury markets to the open market trading desk here.

I also oversee the Treasury Market Practices Group, as you said, which is a group of market professionals that work to promote best practices in the Treasury agency debt and agency MBS market, and that group is sponsored by the New York Fed. Then I’m also the New York Fed rep on the Inter-Agency Working Group for Treasury Market Surveillance, which is IAWG for short. That’s a group of staff from the agencies that have responsibility for overseeing the Treasury market that work together to think about Treasury market resilience issues. That includes staff from the US Treasury, the Board of Governors, the SEC, CFTC, and then us, the New York Fed.

Beckworth: You coordinate a lot of different agencies, a lot of different work, and get things done. I want to retell the story when I first met you. Part of your job is to do outreach as well, like you’re doing here with us, but you also participate in conferences. You’ve organized some really interesting conferences. You’ve written papers as well. I was actually in New York City in 2024, and I was actually up there recording some podcasts, Ellen. I don’t know if I told you this last time, but I was actually recording a podcast with Rich Clarida, over at PIMCO.

Golay: Oh, I didn’t know. Yes.

Beckworth: Yes. I went into this fancy building. It had this nice grand piano, and downstairs you go up. I was just impressed by that alone. Then to get to his office, of course, it’s beautiful, and we sit down with him. Then also, that same day or the day after, we went to the Manhattan Institute. At the time, Stephen Miran was there as a fellow. Interviewed him, and then Dan Katz, who I believe is now at the IMF. One of those evenings, I got a message from Bill Nelson, who’s a regular on this podcast. “Hey, David, come on over and check out this thing called Money Marketeers.” He goes, “I’ll be discussing one of our favorite issues, the Fed’s operating system.” I said, “Okay.”

I wandered over there, and then there was Mark Cabana on one side, from Bank of America. He was defending the ample reserve. Then Bill, of course, was arguing for something different. Then you had to stand between the two and negotiate, moderate the two. I was impressed. I said, “Wow, she would be a fantastic person for the podcast.” I think I came up to you afterwards, and we chatted at that time.

Golay: That’s right.

Beckworth: Great memory.

Golay: Yes. Well, it was a really nice panel. It was great to hear from the two sides, Mark and Bill. They really, at the time, were taking very extreme ends of the position. It’s interesting to see how that conversation has evolved in the ensuing years. It was definitely a prescient discussion at the time, and I was happy to moderate it.

Beckworth: That’s a great point. At the time, this was just a discussion, an academic discussion of sorts. Now there’s real conversations going on. The new Fed chair, his task force, as well as people like Lorie Logan. Everyone’s talking about how to shrink the balance sheet, even if we keep an ample reserve system. How do we navigate that? I would say the Overton window has shifted, but there’s still interesting times. This affects, of course, what you do in Treasury markets because Treasuries make up a large portion of the asset side of the Fed’s balance sheet.

Never mind. I was going to ask you this question. How do you view your work? Since you work on Treasuries and Treasury markets, and part of what you do is broader than just the Fed, as you mentioned, but from the Fed’s perspective, do you view your role as, “Hey, we’re the Fed, we’re the bank for the federal government, we’re the fiscal agent for the federal government.” That includes dealing with Treasuries, TGA, or is it, “Hey, we’re the Fed. We have this big balance sheet with a lot of Treasuries on it.” How do you view your work? From what prism? Maybe both.

Golay: Yes. All of the above, C. Right?

Beckworth: Okay.

Golay: Of course, the Fed cares a lot about the Treasury market. It’s the market we execute monetary policy in, so it’s critical for us for the success of our policies. It’s critical for the financial system. It serves as a benchmark rate across the world. Then, of course, it’s the way that the US government funds itself. It’s just a critical market. I think all of the major official sector institutions in this space, of course, care a lot about the Treasury market, and we do as well. We do also care about it as an institution that holds a lot of Treasuries, that transactions a lot in the Treasury market.

From my seat in particular, I oversaw the COVID purchases in the Treasury market that were in response to the dash for cash. Then I also, in the past, have had responsibility for our rollover operations, which is how we reinvest maturing Treasuries into new Treasuries. I have a lot of boots-on-the-ground experience with actually executing in the Treasury market. I care about it from that prism, and I provide advice to the desk and policymakers about implementing policy from that prism. Then, of course, we are a fiscal agent for the US Treasury. We, as directed by them, do various actions on their behalf. That’s, of course, another area of focus of ours.

Beckworth: Ellen, I did not realize you were there. You were the boots on the ground during COVID, during the dash for cash in March. Do you and your team have a T-shirt that say, “I survived March 2020”?

Golay: I should. 

Beckworth: Right? That must have been really interesting from your side. Probably many sleepless nights.

Golay: Yes.

Beckworth: Probably you had this Bloomberg completely wired into your veins, and you were just trying to stay on top of things.

Golay: Yes. It was a crazy time because we were doing all this, and of course, we’re here in New York, which was also the epicenter of the beginning of COVID. We were trying to make these large interventions in the Treasury market. Also, at the same time, we had to shift our operating model to home, which we didn’t really have the capability to do previously. Doing that, and of course, everyone’s, at the same time, concerned for their families and their own health. It was certainly a very challenging time, but we learned a ton, and it was definitely gratifying that we were able to restore functioning to the Treasury market.

Beckworth: One more thing about your career before we jump into the Treasury market proper discussion. You also worked on mortgage-backed securities for part of your stay there. Is that right?

Golay: That’s right. I was on the mortgage team, I think, for two or three years. I oversaw the analysis on that team, and then I led the staff for about a year. I joke that mortgages are one of my side projects, and I watch it from the side. With the Treasury Market Practices Group, while the name of the group is the Treasury Market Practices Group, over time, the remit of that group has grown. It’s also responsible for promoting best practices in the agency MBS market. That’s also an area that I worked on in the past in my career, and I still work on from time to time now.

Beckworth: They report to you, then, ultimately. You’re at the top of the chain there?

Golay: Not the mortgage team. I’m an advisor, so I’m more the grizzled vet off to the side providing advice and my analysis. I work with the mortgage team and the Treasury team. It’s a great group of folks focused on these issues.

Beckworth: You’re doing a lot of interesting work. You mentioned March 2020. We’re going to come back to that later. We talked about some of your papers, what are some things that may have made a difference during that time, some of the research that you’re doing. You’ve also recently visited TBAC, the Treasury Borrowing Advisement Committee, which is the market’s representation at Treasury saying, “Hey, this is what we want to do.” Things happen there. Before we get into all those details, though, tell us about that. Do you regularly go to TBAC? Is that part of your job now?

Golay: Yes. Maybe just stepping back for a minute, the Treasury Borrowing Advisory Committee, it’s an advisory group for Treasury, again, made of senior market professionals. It provides advice to Treasury on debt management issues. Also, the outlook for the economy and other Treasury market issues. I’ve been lucky that in recent years I’ve been able to be a guest at that meeting, as a representative from the New York Fed. It’s a very interesting meeting. It’s a great group of people, and they do great analysis. I’m always pleased when I’m able to attend those meetings.

The Treasury Market

Beckworth: Okay. Well, let’s talk about the Treasury market. Let me say a few things about it that I know you can’t say, but I’ll say as a host. Just from the outside, things appear to be getting very interesting. For starters, we have a 30-year Treasury yield hitting 5.3 at some point recently, which is really high. I think the last time it got that high was in 2007. In the grand scheme of things, it’s not that high. I still find it to be relatively moderate compared to the size of our debt, but still, this has got some people worked up. In fact, there was a front-page Wall Street Journal article on this, that we’ve hit this high we haven’t had since 2007.

There’s also been a lot of Treasury bill issuance. People have been talking about that a lot as well. Again, my understanding is, though, in terms of total outstanding, it’s not that far off historical patterns, but just the issuance seems to be a lot of tilted toward Treasury bill. 

Secretary Bessent, from the Treasury Department, also has been getting involved in Treasury markets. Obviously, part of his job, but he mentioned things like the FIMA facility, which is really a Fed facility. He’s talked about that with the recent Japan intervention. He’s also mentioned about doubling the size of the Treasury buyback program. These are all developments that affect the Treasury market and indirectly affect you, and you have to respond to that. Maybe we should step back and talk about the Treasury market from broad contours, the overview. How big is it now? What are the major segments of it? How do you think about it?

Golay: Sure. It’s a very big market. I think the Congressional Budget Office had it at $30 trillion at the end of 2025. It’s forecasted to grow by another, I think, $26 or $27 trillion over the next 10 years. It’s really a very large market and expected to get larger. As I was saying before, it’s a critical market for the functioning of the financial system. It’s something we care a lot about, the resilience of that market. The Treasury market, it has several different segments. 

It has the cash segment. That’s where people buy and sell Treasuries outright. Some of that trading is electronic, over inter-dealer brokers. Some of that trading is more dealer-to-customer, intermediate by dealers. Then there’s also the repo market, the repurchase market. That’s a collateralized lending market where there’s an agreement to sell a Treasury security and then buy it back later. That’s called a repurchase agreement or a repo. That is a very active market where folks finance their Treasuries and they can obtain leverage there. That market is primarily dealer intermediated, but also very important to the functioning of the Treasury market.

Yes, these are all really important things. As you said, there’s been a lot of discussion in the public of the Treasury market over recent days with the long-end yields increasing notably. We hear that a lot of that is focused on some uncertainty around the Fed’s policies and how that’ll work over the longer run. Then, to a lesser extent, concerns about this growth in the Treasury market and government bond markets in general, and then also questions about the persistence of inflation that we’ve seen, inflation recently, and so some questions about that. It’s certainly a very important time for the Treasury market.

Beckworth: If I sit back and I look at the Treasury market, as you just described, and look at the big trends, one of the things I see is, of course, this large, persistent budget deficits and CBO projects they’re going to continue: $2 trillion, almost $2 trillion this year, 6% of GDP as far as the eye can see. Maybe we’ll have reform at some point in the future, but that puts a lot of pressure on the Treasury market. It also puts a lot of pressure on the traditional participants, the primary dealers, these big institutions. Their balance sheets used to be the main intermediary for these securities, but that’s shifted now. You do a lot more with high-frequency traders. This changing, I guess, the buyers, the investors on the Treasury market side, that’s changed a lot, right? That’s affected your work?

Golay: Yes, certainly. On the cash side, particularly in the electronic side, like you say, that there’s been a movement where there’s been more involvement of firms. We like to call them principal trading firms, so PTFs, but they often have high-frequency strategies and they trade on the electronic marketplaces. They’ve gone from 20 years ago, they weren’t in the Treasury market, to now potentially even the majority of trades in the electronic cash market. That’s certainly driven a lot of the work of the official sector and my work in particular.

There was a flash rally in the Treasury market that occurred in 2014, and that actually set off a lot of official sector work to try and understand what was happening in the electronic market because this big move happened in yields that no one could really understand what drove it. That is when the official sector really began to understand the growth of the principal trading firms in the electronic market. That really kind of lit a fire under the work of the IAWG to really learn more about the Treasury market structure, get better data on Treasury markets, and make sure that we really understand it well so that we can think about how to make it more resilient.

As you have these different participant types, and you have this large volume, you want the pipes to flow well. You don’t want there to be any issues there, and so that’s something we’ve focused on a lot.

Beckworth: This shift from the primary dealers, traditional big financial institutions, and their balance sheets, toward principal trading firms, high-frequency trading hedge funds, my understanding, and correct me if I’m wrong, is that they’re filling an important gap that some of these institutions can’t do anymore because of Dodd-Frank post-2008 reforms. They provide liquidity. They play an important role. However, they tend to be more fickle than the primary dealers. Primary dealers, they’re there. They’ll be with you. They just can’t handle the capacity, given all the debt we’re putting out. Like March 2020, this was a big deal. They left the market. That’s part of the challenge we face. Is that fair?

Golay: Yes, I think that’s fair. It’s basically what you can see. Darrell Duffie has a nice chart on this in one of his papers where you can see that, basically, primary dealer balance sheet to Treasury market intermediation has not grown at all with the pace of growth in Treasuries outstanding. As you say, that’s partly due to the post-2008 reforms, but I think it’s also due just to the pace of growth of Treasuries outstanding.

As you have this market that’s growing, it’s going to attract different investors just because it has to. Then you end up with investor types that maybe are more price sensitive than the traditional primary dealers were, like principal trading firms or hedge funds. Then during the 2020 period, we did see some reduction in activity by the principal trading firms. I will say, in other times of volatility, we have actually observed increases in activity by the principal trading firms. I don’t think it’s always the case that the PTFs will pull back in volatility, but in that case, it did happen. In that case, everyone pulled back. 

Beckworth: Yes. That’s fair. That’s fair.

Golay: They wanted to convert their Treasuries to cash. That was really the problem was just this wave of selling and no one on the other side to buy. Then that’s where we stepped in.

Beckworth: Yes, that’s fair. I don’t think if you had, ahead of time, had the optimal Treasury market set up in place, it probably, too, would have struggled through March 2020.

Golay: I think so. The goal is to make these incremental improvements to Treasury market structure, so that if we ever face something like that again, hopefully, we’ll weather it a bit better. It’s never going to be perfect. An incident like that is always going to be a challenging situation. Make the improvements, like expanding central clearing, for example, so that when we have these more challenging times, the pipes flow a bit better.

All-to-All Trading

Beckworth: Okay. Let’s talk about some of those proposals, some of its work in progress. Then I want to go back to some of the policy discussions. Like, you had it TBAC, the Treasury Borrowing Advisory Committee. Let’s talk about proposals, ideas. Again, some things are a work in progress, like central clearing. I want to go to one that you’ve written extensively about. You’re an expert on this. This is all-to-all Treasury market. You have a paper, a co-authored paper in 2025, “All-to-All Trading in the US Treasury Market.” Remind our audience what this is, and then how this might help some of the problems we’ve just been discussing.

Golay: Sure. The idea behind all-to-all trading is it’s exactly what it sounds like. It’s basically that any participant in the Treasury market could trade with any other participant in the Treasury market. That doesn’t sound that revolutionary in other markets, like the equities market, that’s actually pretty much how it is. In the Treasury market, where there is a lot of over-the-counter trading and dealer intermediation, it’s not that way. There are segments where there is more of that, like the electronic cash market like we were talking about, but there’s a lot of the market that does not trade that way.

What that means is that any trading that occurs really has to be intermediated by the dealers. On a normal day, that’s fine. On a day like March 2020, the dealers, when they start hitting—and also I’ll just mention that going into March 2020, the dealer balance sheets were actually already very high with Treasuries. They went into that situation holding a lot of Treasuries. Then this giant wave of selling comes in, and they don’t have the capacity to intermediate anymore. That’s where you say there might be an opportunity here if you didn’t have to go through the dealers to sell these securities, maybe you could find someone on the other side to pair off with.

Now, in March 2020, like I said before, most folks wanted to sell. It’s hard to think that that situation would be perfectly addressed by increased all-to-all trading, but as I was saying before, every incremental improvement in market structure could contribute to making a situation like that more sustainable.

Beckworth: Okay. Help me think through, how would that actually work in practice? I’m a retail personnel. Of course, the dash for cash was more institutional, bigger players. Let’s just say for you and me, we’re in this world where we have all-to-all trading. Is this the online app I go to and I can sell it to you? Do I even know who I’m selling it to?

Golay: Maybe not. When you trade over inter-dealer brokers, for example, you don’t know. It’s anonymous, and the inter-dealer broker sits in the middle of the trade. If there’s a cash Treasury trade over BrokerTec, for example, and one side’s a hedge fund and another side’s a dealer, the hedge fund and dealers are actually trading with BrokerTec, and BrokerTec’s in the middle. They don’t know that they’re trading with each other. That’s how they get the anonymity. You can imagine in a utopia, TreasuryDirect has the ability that an average American can log on and get an account and can participate in a Treasury auction.

You can imagine some perfect world where something like that exists for outright trading in Treasuries, where any Joe on the street could log on and get an account. Today, that doesn’t exist. I think it would really require the investment by some platform to say, “I’m going to try and put forward this business model.” So far, folks who have tried to go into this space outside of the cash market, they’ve seen middling success. Part of the issue is that there’s not always a matching trade on both sides.

That’s one of the analyses we have in the all-to-all paper, is that for the off-the-run market, for example, if you’re looking in a 15-minute increment, and you’re trying to sell a particular off-the-run security, there’s not many folks who want to buy that same security. If you look over a day increment, I think it goes up to 60% or 70% can match off. You could imagine some things, like you could have a batch auction at the end of the day. There are some folks who have that type of functionality. There’s ways you could innovate this forward. As of now, there’s not really been anything that’s gotten off the ground successfully.

Beckworth: This is a topic I was going to get to later, but I think this is a good place to jump into it. Maybe the digitization of Treasury markets, innovations in Treasury markets. You’ve talked about that as well in other places. Could the tokenization of Treasury securities be a part of all-to-all? Would it make it easier, I guess?

Golay: It could. Some of the innovations of things like stablecoins and tokenized Treasuries is that the settlement of those becomes easier if it takes out some of those frictions. That is some of the frictions we heard about when we were doing the all-to-all paper, is setting up clearing and settlement arrangements with each of your counterparties could be challenging in an all-to-all environment. That’s part - One of the other findings of the paper was that if central clearing was expanded, that that could facilitate a transition to more all-to-all trading, because then you don’t have to set up those bilateral clearing arrangements.

You’re set up with the CCP, it doesn’t matter who you trade with. If they’re set up with the CCP, you just send the trades to the CCP, the central counterparty, and then they can arrange the clearing of those trades.

Beckworth: Central clearing would be a big piece of the puzzle for all-to-all if—

Golay: Potentially. Yes.

Beckworth: —we want this. Yes. Is another way to think about all-to-all is we are effectively expanding the balance sheet capacity of the Treasury market? Instead of just relying on the balance sheet capacity of primary dealers, your balance sheet, my balance sheet, and all the other retail, maybe some additional institutions would be participating and wouldn’t otherwise be there.

Golay: Right. Yes, I think that’s a great way to put it, and definitely a way to think about it. I think one other thing to just think about is sometimes when this topic comes up, people get concerned about the idea of dealers getting disintermediated from the Treasury market. I think there’s always a place for dealers. There’s always clients that are going to prefer to transact with the dealer, get the advice from a dealer. As we said at the beginning, this market is big and growing tremendously. I think there’s plenty of room for dealer intermediation and plenty of room for other types of intermediation.

Beckworth: Have you heard this concern from the primary dealers themselves? Are they the ones bringing this up or just people in general? I’m curious.

Golay: I think it’s both. Obviously, I think any type of market participant, if they see some change that could change their role in a market, they might have concerns. I think dealers in general and the primary dealers in particular play very critical roles to the functioning of the Treasury market. I would say, even from the seat of the official sector, that their role is very important. We need the dealer intermediation in this market. I think it’s more of a widespread feeling personally.

Beckworth: I bring it up because you mentioned stablecoins. I’ve had a lot of conversations on stablecoins, I’ve written some on stablecoins. One of the big pushbacks against stablecoins is from banks. Their good argument is, “We’re going to be disintermediated.” There’s also, in my mind, some motivated reasoning there. They’re losing business. There’s competition. I think it’s a fair concern, but I also think it’s important to have innovation, to have competition. It might force banks to do things a little bit differently.

By analogy, maybe primary dealers have to innovate their business too, if we have all-to-all trading. They won’t go out of business, just do things differently, maybe find new ways to do things. I guess I’m hopeful all-to-all will be another innovation, another way to move this market forward.

Golay: Yes, I agree. I think creating more competition is good. It drives innovation. I think that could be good in this space.

Treasury Market Liquidity

Beckworth: Yes. Let’s talk about another paper that you’ve done. This deals with the Treasury market liquidity. This is another 2025 paper. It’s called, “Liquidity and Trading Dynamics in the Off-the-Run U.S. Treasury Market.” It also addresses some of these issues that you’ve dealt with. You guys actually do some hard empirical analysis in this. Tell us about the dataset you went after to get the results in this paper, because it’s really fascinating.

Golay: Sure. This paper I co-wrote with some of my colleagues at the Board of Governors and also here at the New York Fed. I’m so grateful to their expertise on this paper. Basically, the idea was to look at the off-the-run market. As we’ve been talking about, the dash for cash was such a big event. In that event, the dash for cash was primarily composed of sales of off-the-run securities. Maybe I’ll just briefly mention that off-the-run Treasuries, they’re the more seasoned Treasuries. The newest Treasuries, the ones that were just issued, they’re called on-the-runs. Then the ones that are slightly older than those are the off-the-runs.

The off-the-run securities, they go from the first off-the-run, which could be three months old, to a 29-year-old, 30-year security. It’s a huge gap. It makes up something like 97% of Treasuries outstanding are off-the-run Treasuries. It’s a really critical part of the Treasury market. It was where the vast majority of the selling occurred in the dash for cash. That’s part of why it ended up stuck in the dealer intermediation, because the off-the-run market is dealer intermediated. There’s not an all-to-all segment for the off-the-run market.

In this paper, what we did is we used trace data, which is data that FINRA collects on Treasury transactions. There’s certain amounts of this data that are published to the public, and in other parts that are only available to the official sector. We were able to look at the transaction-level data for off-the-runs that’s just available to the official sector. What we did was we did analysis of the trades in the off-the-run market to look at their liquidity as the securities age. Basically, what we found empirically is what everyone who transacts in the Treasury market knows, which is that as Treasuries become older, they become less liquid.

They have bigger price impacts when traded, and their volumes go down, and the bid-ask spreads widen. We also found something else that is widely known by folks who trade in the Treasury market, but still interesting to prove with data, which is that off-the-run Treasury securities become the cheapest to deliver into a Treasury futures contract, which means that if you want to sell a Treasury future, you take the security to deliver into that future. What that means is that those securities actually trade with better liquidity than their similar off-the-run compatriots.

That shows you just that part of the issue with off-the-runs is the trading activity. When there is trading activity because the security is cheapest to deliver, its liquidity improves. When there’s not a lot of trading activity, as is typical with a regular seasoned off-the-run, its liquidity deteriorates. It was great to do that analysis and be able to put statistics behind these dynamics in the market. The off-the-run market, because it’s such a large segment of the Treasury market, it’s really critical to understand it better.

Beckworth: I love how you framed in the paper, there’s a “liquidity lifecycle.” It’s like, anything has some kind of lifecycle, so does liquidity. I want to quote some numbers here if I got them right.

Golay: Sure.

Beckworth: You mentioned, average daily volume falls from $56.3 billion for on-the-run to $5.5 billion for the first off-the-run, and $1.6 billion for the second off-the-run. It drops pretty quickly, and you lose that liquidity. Again, this is a big deal because you say 98% of the Treasury market is off-the-run. That’s a big drop-off for most of the Treasury market.

Golay: That’s right. Yes, it’s right. This is where most large institutional investors, if they’re buying a Treasury and holding it to maturity, then they’re holding an off-the-run. This is what people are holding. A lot of times, investors are holding these Treasuries with the idea that they have a lot of liquidity. They certainly do. The off-the-run Treasury market, while it’s less liquid than the on-the-run market, it’s still much more liquid than many other segments of financial markets, but it’s not as liquid as cash or the on-the-run market. In an extreme situation, like the dash for cash, the lower liquidity starts to really show.

Beckworth: Yes. This other finding of, this cheapest to deliver, you showed that you can effectively resurrect the liquidity of these older securities. Then you guys have some policy implications that flow from that. For example, if you can increase activity with Treasury buybacks, increase central clearing, you said fewer larger Treasury issues too, maybe talk through some of that. How would that help this market?

Golay: The buybacks, like you say, that just is another activity generation opportunity around the off-the-run securities. That can improve liquidity in those securities. Central clearing, in general, just makes the flowing through the pipes easier, which can facilitate settlement and then also can facilitate counterparty relationships, like we were talking about earlier. You don’t have to worry about setting up that clearing with every single counterparty you’re set up with if you have more central clearing. 

On your third point, the idea that you could have fewer larger securities, we came up with a little bit of, on one hand, on the other hand, takeaway on that. We didn’t really have a big conclusion. Today, there are certain Treasury securities that are issued only every three months and they’re reopened on a monthly basis. It’s one security that’s bigger, but the new security is only issued every three months, whereas there are some other Treasuries that are issued on a monthly basis. There’s some arguments for why you like the monthly. Maybe it’s easier for your portfolio management, maybe it’s easier if you try to manage to an index.

There’s some folks who argue, “Well, one big security, it’s easier to trade, it’s easier to net on your balance sheets because it’s one big security.” It was a topic that the Treasury Borrowing Advisory Committee has looked at in the past, so that’s part of why we looked at it. It’s an interesting thought exercise, but we really struggled to come down with if we thought it was really better or worse.

Beckworth: Having the larger Treasury issues would be good for keeping the activity going, but on the other hand, people like the predictable, smaller options as well.

Golay: Yes, and the finer increments.

Beckworth: Finer increments. Okay.

Golay: If they’re looking to manage their WAM to a certain date, it can be easier to do that if they have a monthly increment versus a quarterly increment of issuance.

Beckworth: One last thing on this policy implication, you also mentioned all-to-all, again, as another potential thing. All-to-all is everywhere. It’s like the panacea. If you can get it done perfectly. Maybe panacea is too strong of a term, but it definitely would go a long way in helping the Treasury market.

Golay: It could be very helpful, but I think there’s reasons that the Treasury market is where it is, and that it hasn’t really taken off. It’s some of those things we were talking about before, that the matching in the less liquid spaces is not as high. Then you really need a platform to take this on and say, “Hey, I’m going to come out with a business model and see if it gets success.” We just haven’t seen that in large scale as of yet.

Treasury Borrowing Advisory Committee

Beckworth: We just need tokenized Treasuries, and some kind of distributed ledger technology, some business model, some profit motive, and boom, we’ll end up with all-to-all at some point. Let’s go to your recent trip to the Treasury Borrowing Advisory Committee, because that’s something that’s fun to follow. It’s always interesting to read their minutes when they come out. I remember when they first proposed the Treasury buyback, we were like, “Wow, this is so exciting. Another tool. Is this like Treasury QE or is it different?” “Oh, it’s just liquidity.” “Okay.”

What would you highlight from the meeting you attend? What was the big thing, especially as it relates to your work? Because I understand they cited some of your own papers there, right?

Golay: Yes. This last Treasury Borrowing Advisory Committee meeting, I was really excited about the presentation that they made about potential incremental increases in transparency around Treasury transaction data. This feeds right into everything we’ve been talking about today. They basically looked at the Treasury market as it is today, and the transparency as it is today, and said, “What areas might it make sense to increase transparency a bit?” Currently today, there’s been several steps in this direction.

There are aggregate statistics across the whole Treasury market that are released using this Treasury trace data. Then there’s also transaction-level data that’s released on on-the-run Treasury securities. The question was, is there any benefit to expanding some of that transaction-level disclosures to maybe some other segments of the Treasury market? What the presenting TBAC member suggested was that there could be benefits to releasing transaction-level data on Treasury bills. That might be something that could be beneficial, and maybe also more frequent data on on-the-run Treasury securities.

The TBAC really expressed caution on expanding transparency for other segments of the Treasury market, like the off-the-run market, like we’ve been talking about, the TIPS market, which is also pretty illiquid. That was really interesting to me because this has been a critical part of the work of the Inter-Agency Working Group over recent years. It was a priority set out in 2021 for the group to look at data transparency for the Treasury market. In the various work I’ve done, we’ve looked a lot at whether increasing transparency might improve the take-up of all-to-all trading, for example.

That off-the-run analysis I was talking about, we were able to do it because we’re in the official sector and we can use this data, but a researcher not in the official sector wouldn’t be able to do that analysis. From my seat, I think some small incremental steps toward transparency for the Treasury market could be beneficial. It can give market participants comfort that they understand how the Treasury markets work, and it can provide researchers opportunity to learn more about the Treasury market.

I sit on that side of things, but I do understand that you need to be cautious just because in the parts of the market that are less liquid, if too much information is released, it can make it really hard to intermediate those segments. As we’ve been saying, those segments really rely on intermediation.

Beckworth: Yes. Too much information could actually make things worse if it’s a highly illiquid security. You want to be careful.

Golay: That’s the argument. Yes.

Beckworth: Yes. I guess looking back with my limited reading of the TBAC minutes, I haven’t followed them closely for a long time. Again, I mentioned earlier the Treasury buyback program. That was announced. I was like, “Oh, this sounds exciting. It sounds like a good idea.” Now Treasury is actually doing it. We mentioned Secretary Bessent wants to double the size of it, wants to use it on the long end of the Treasury curb, too, moreover. 

Something that was exciting—I guess exciting is too strong—something that was interesting that came out of this TBAC meeting was the idea that Treasury could start repoing its TGA balances, or its cash. Instead of just parking cash at the Fed, earning nothing, it could actually invest it in the repo market. It actually could put that liquidity into the marketplace. As listeners of the show know, whenever the TGA grows, that shrinks the reserves and makes your life, makes the Fed’s life more challenging. 

One of the challenges of the Fed’s balance sheet is you have this big autonomous factor called TGA, which can cause swings in the reserves, and you need a certain amount of reserves to hit your target interest rates. What can you say about that? I know this is a closed meeting, but is there a favorable view on this?

Golay: Yes, it is a closed meeting, so I can’t say too much besides what’s in the minutes and in the presentation. I think that presentation was not this last meeting. I think it was the one before, if I remember right.

Beckworth: Oh, before. Okay.

Golay: One thing I can say is that, as you know, we organize a conference on the Treasury market every year, hosted at the New York Fed and sponsored by the IAWG organizations. That conference will be on September 22nd, which is actually the day after this podcast will come out. Everyone, definitely, feel free to tune in on the New York Fed website. It’ll be a great day.

One of the panel topics at the conference will be the potential for investing TGA cash into the repo market. I think that would be a great opportunity for folks who are interested in this topic, to learn more, is to tune in to that conference.

Beckworth: Well, you know who will be there? Me. I will be—

Golay: Great.

Beckworth: —watching very closely. I think it’s an important question because, as we do talk about, are there ways to shrink the Fed’s balance sheet, or at least to reduce the demand for reserves, the TGA is a big part of this conversation. What’s interesting, at least for me, is on the Fed’s side, from the Fed’s perspective, they’re wrestling with it as well. There’s been proposals that independently, the Fed would take the TGA cash and invest them in a repo. There’s been proposals that they would have a stock of T-bills. They would do open market operations to offset the swings and basically isolate the TGA so it doesn’t have an effect on the rest of the balance sheet.

This is a proposal from the Treasury’s perspective. It would intermediate and use as TGA cash. To me, this is exciting to see and interesting to follow. We will watch your conference closely. Listeners, as you listen to this on Monday, be sure to tune in on Tuesday. I guess this will be recorded. They could tune in later in the week or even after that to follow.

Golay: Yes. The conference will be recorded, and there will be a playback on the website. Even if you listen to this podcast and you’ve missed the conference on Tuesday, don’t worry. You can go to New York Fed website and watch it anytime.

Central Clearing

Beckworth: Yes, absolutely. Let’s go on to another important development. We’ve touched on it, but I want to get the full details on it. That is central clearing. I think we talked about this last time. There were a number of dates that were set, I know some of them have been passed, and there’s some hurdles to clear. Where are we on the journey to increase central clearing in the Treasury market?

Golay: Well, we’re far along in getting toward the deadline. There’s a lot happening. Yes, this is a major, major market structure change for the Treasury market. In terms of the deadlines, the expansion in the cash market for central clearing, the deadline for that is this December, so coming right up. Then the expansion for the repo market is next June. The deadlines are coming right up. In terms of what’s in scope for clearing, in the cash market, what’s in scope is primarily trades over the inter-dealer brokers, so those electronic trades we’ve been talking about previously. They are primarily trades by the principal trading firms that are today uncleared, that will be moving into central clearing.

On the repo market, it’s really the vast majority of the repo market that will be moving into central clearing. The numbers are that there’s $2 to $2.5 trillion that will need to move into central clearing on the repo market side, whereas on the cash market side, that’s more in the hundreds of billions. This is definitely a pretty big move for the market. One thing I do want to say is there are some exemptions in terms of trades that are required to go into central clearing. One exemption is central banks. Just wanted to flag that.

Beckworth: Well, speaking of central banks and central clearing, the New York Fed has the standing repo operations, formerly known as the standing repo facility. Maybe tell me real quick, why was the name changed on that? Why did you go from SRF to SRP?

Golay: Yes. Part of that, there were several different initiatives taken last year to try and improve the effectiveness of the SRP. One was then another early morning operation was introduced that also settles early. One was that the cap on participation was increased, basically making the operations full allotment. Then the third main change was the communication around it. The goal of that communication was really to explain that the SRP is an open market operation like any other Fed open market operation. It’s like the repos we used to do pre-crisis, like any other open market operation, and that it should be used whenever economically beneficial to do so.

Not thought of something that is a backstop, and that you should not use it. That if it’s in the money, if it makes sense for your firm, go ahead, please use it. That allows the rate to be more effective at influencing money market rates. That was the thinking. Really, it was more of a clarification. That was the intent of the SRP all along, but we learned that there was this misunderstanding around it. This communication was made in changing the name of the operation to clarify that it’s an open market operation and should be used whenever it’s economically sensible.

Beckworth: That makes a lot of sense. There were some actual changes, but this is an important marketing communication decision as well. Just like the conversation sometimes we have about the discount window. Do we need to rename it? There’s all this stigma associated. Maybe we need is to rebrand it so people will approach it. That’s really interesting. To me, I’m glad you did it. It’s an important step because I’m someone who wants to see more regular use of the discount window and the standing repo operations. 

Like many European and other advanced economy central banks, they use these ceiling facilities as business as usual. If there’s a shortage of liquidity, banks can come to them. I think there’s a lot of conversations going on right now. How do we shrink the Fed’s balance sheet? One way to make these things more accessible, more user-friendly, banks more comfortable coming to them. Along those lines, you guys have a survey where you go out and you’ve asked people about that. The survey suggests that there is an improved willingness to use this facility. Tell us about the survey, what it reveals.

Golay: Yes. There’s a survey of the primary dealers, to try and get their points of view on the SRP. Then also, there’s a regular survey that’s done by the Board to get the views of senior financial officers on these sorts of topics. In general, it’s showing that the changes, both in the morning operation, the full allotment, and then also the communication, has improved willingness to use the SRP, which is great. That allows it to be a more effective rate in terms of influencing money market rates.

Beckworth: All right. This suggests that we will see more usage of it going forward. If, again, some of these proposals, for example, there’s discussions about tying in liquidity regulations into collateral parked at the discount window. Maybe even things tied to the standing repo operations. There’s a lot of conversations happening. We have to see if there’s any changes, but this could be an important part of the story going forward.

Ellen’s Policy Wishes

Well, Ellen, as we get near the end of the show here, I want to give you a magic wand. You can make several changes to the Treasury market. You can do whatever you want. What would be your top two or three things you would snap your fingers or wave that wand and you’d get it?

Golay: Wow. That’s a big one. All-to-all trading. I have to say that.

Beckworth: All-to-all. Okay. I figured you’d say that. Yes.

Golay: I think that would be beneficial for the market, for sure. In the central clearing space, there’s this type of clearing that’s called agent clearing. Sometimes people also call it done-away clearing. It’s basically the idea that you could transact your trade with a counterparty, but then clear it through another clearing intermediary who’s not the same as the counterparty you transacted with. In other markets, that’s totally normal, totally prevalent. In the Treasury market, it’s not prevalent.

I think if I could wave a magic wand and make that much more prevalent, I think that would facilitate the transition to more central clearing in the Treasury market. I think I would wave that wand. I think those are two I could think of off the top of my head.

Beckworth: Those are great. I figured you’d say all-to-all. That’s definitely one that you’ve worked on. Clearly, that’s one of your favorites. Well, I am glad that you’re at the helm there at the New York Fed working this issue. We look forward to seeing how these developments unfold. Thank you, once again, for coming on the program. Our guest today has been Ellen Correia Golay. Ellen, thank you so much.

Golay: Thank you so much, David. This has been a great conversation.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.