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Enhancing the Liquidity of U.S. Treasury Securities in an Era of Surpluses

  • Paul Bennett
  • Kenneth Garbade
  • John Kambhu

This paper presents three proposals intended to enhance liquidity in the market for U.S. Treasury debt: making principal and interest STRIPS maturing on a common date fungible with each other, aligning the maturity of 2-year debt with either bill maturities or the maturities of longer-term debt, and establishing a facility to allow market participants to exchange (with the Department of the Treasury) single-payment securities with similar, but not identical, maturities. The proposals would enhance liquidity by improving the substitutability of identical and very nearly identical Treasury liabilities, and by increasing the integration of the markets for bills, notes, bonds and STRIPS. The proposals would be complementary to, rather than a substitute for, the initiative to buy back outstanding debt announced in August 1999.

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File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99083.pdf
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Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-083.

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Date of creation: 23 Nov 1999
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Handle: RePEc:fth:nystfi:99-083
Contact details of provider: Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/

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  8. Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 367-378, September.
  9. Boudoukh, Jacob & Whitelaw, Robert F, 1993. "Liquidity as a Choice Variable: A Lesson from the Japanese Government Bond Market," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 265-92.
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  19. Daves, Phillip R & Ehrhardt, Michael C, 1993. " Liquidity, Reconstitution, and the Value of U.S. Treasury Strips," Journal of Finance, American Finance Association, vol. 48(1), pages 315-29, March.
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  21. Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, vol. 45(3), pages 365-390, September.
  22. Boyle, Phelim P, 1989. " The Quality Option and Timing Option in Futures Contracts," Journal of Finance, American Finance Association, vol. 44(1), pages 101-13, March.
  23. Lippman, Steven A & McCall, John J, 1986. "An Operational Measure of Liquidity," American Economic Review, American Economic Association, vol. 76(1), pages 43-55, March.
  24. Garbade, Kenneth D & Silber, William L, 1983. "Futures Contracts on Commodities with Multiple Varieties: An Analysis of Premiums and Discounts," The Journal of Business, University of Chicago Press, vol. 56(3), pages 249-72, July.
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