(Bloomberg) — Liquidity in Treasury Inflation-Protected Securities has made notable strides in the past year aided by increased customer interest in the product, according to Tradeweb Markets Inc., which operates a leading electronic trading platform for US government bonds.
While TIPS liquidity “still notably lags” compared with nominal Treasuries, “significant investments in infrastructure by TIPS liquidity providers over the last several years” are making a measurable difference, Tradeweb says in a blog post. In particular:
- In the request-for-quote (RFQ) trading protocol, dealer response times of under a second have increased to around 70% from around 50% in mid-2021, the approximate level since early 2020, “a clear sign of auto-quoting,” Tradeweb says
- On the customer side, there’s been an increase in auto-execution trades suggesting “that the market is getting comfortable enough with TIPS liquidity to ‘set it and forget it’ through automation”
- Percentage of tickets executed via Tradeweb’s automated-execution engine AiEX exceeds 20%, up from closer to 10% in 2020
- Number of trades by institutional clients on Tradeweb platform more than doubled over 2016-2021, “with notable growth happening this year”
- TIPS market growth is also driving liquidity improvements, Tradeweb says; issuance increased 29% between 2016 and 2021, and New York Fed’s primary dealer statistics show average daily volumes up 34% over the same period
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