The Liquidity Hierarchy in the U.S. Treasury Market

12 Pages Posted: 24 May 2019

See all articles by Lee Baker

Lee Baker

affiliation not provided to SSRN

Lihong McPhail

Commodity Futures Trading Commission (CFTC)

Bruce Tuckman

New York University (NYU) - Leonard N. Stern School of Business

Date Written: December 3, 2018

Abstract

We describe the complex nature of liquidity in the markets for Treasury bonds and futures contracts. Using a risk-adjusted measure of trading volume, we find that, while overall volume is greater across all cash securities than across all futures contracts, certain futures contracts are more liquid than certain cash securities, and vice versa. Furthermore, futures contracts play a special role in liquidity-challenged environments. Finally, average trade size, in risk terms, is much higher for cash securities than for futures contracts. These findings can be useful to investment practitioners, who constantly weigh the relative values of various securities against their liquidity.

Keywords: Treasury bonds, Treasury Notes, Treasury futures, liquidity, trading volume, trade size

JEL Classification: G15

Suggested Citation

Baker, Lee and McPhail, Lihong and Tuckman, Bruce, The Liquidity Hierarchy in the U.S. Treasury Market (December 3, 2018). NYU Stern School of Business. Available at SSRN: https://ssrn.com/abstract=3378611 or http://dx.doi.org/10.2139/ssrn.3378611

Lee Baker

affiliation not provided to SSRN

Lihong McPhail (Contact Author)

Commodity Futures Trading Commission (CFTC) ( email )

1155 21st Street NW
Washington, DC 20581
United States

Bruce Tuckman

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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