US debt ceiling brinkmanship strains Treasury bonds, prompting calls for reform
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American politicians are undermining confidence in US debt through debt ceiling brinkmanship and rising debt levels. This is straining the Treasury bond market which is the bedrock of global finance.
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Regulators are concerned about volatility, illiquidity, and the large role of leveraged investors like hedge funds in the Treasury market. They have proposed reforms like central clearing of trades.
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The SEC also wants to regulate hedge funds doing basis trades between cash and futures Treasury markets more strictly. This has angered funds who say it will raise costs.
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Some believe the Treasury market is not functioning too badly given difficult circumstances. Reforms may not prevent extreme stress events.
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Alongside the SEC, the Treasury itself is also working on reforms like bond buybacks and increased transparency. But it recognizes the benefits speculators bring in providing liquidity.