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Key Takeaways from the US Treasury Market in March 2020

| Rates

Last week, FIA hosted a panel during the FIA EXPO-Virtual Conference titled, ‘US Treasury Market: Key Takeaways from March 2020,’ featuring industry experts in the cleared derivatives space including leaders from Citadel, J.P. Morgan, Managed Funds Association, DRM and Tradeweb’s own managing director and head of US rates and product strategy, Elisabeth Kirby.

The panel focused on the impact of the COVID-19 pandemic on the US Treasury market last spring and challenges that emerged within the marketplace as a direct result. In March, the US Treasury market experienced record volumes, significant volatility and price dislocations. In relation to these trends, there was a massive surge in the adoption of electronic trading in the US Treasuries space. This ongoing trend, accelerated by the pandemic, has manifested itself in various ways as market participants continue to look for ways to trade more efficiently in a remote environment.

Below are excerpts from Elisabeth Kirby that include key themes from the panel, including the impact of COVID-19 on electronic trading, market participants’ embrace of automated trading functionalities and Tradeweb’s response to the global shift toward an all-virtual environment.

March Madness: Extreme Volatility in March and April

In March, Tradeweb saw record volumes on the platform as more and more market participants opted for electronic trading platforms. The US Treasury market faced extreme levels of volatility and many shifted to virtual environments in response to COVID-19.

“From an electronic trading platform perspective, it was kind of interesting to us because, as we’ve seen in the past, when these types of crises or times of extreme volatility have come into the market we saw market participants revert to the phone and go back to what is maybe a bit more of a comfort zone for them, trading over the phone, and so electronic volumes may have dropped a little bit in previous times of extreme volatility,” Kirby said.

As many market participants reacted to the global pandemic and new work from home environment, we saw heightened volatility marking the beginning of an accelerated trend toward electronification within the financial sector.

Record Setting Volumes

In the face of extraordinary global volatility and many participants working remotely, March 2020 proved to be Tradeweb’s busiest month ever.

“We had record volumes across our platform. Platform-wide, we were seeing over a trillion dollars of average daily volume (ADV) in March, and in the Treasury market in particular on our platform, over $100 billion in average daily volume.”

An Accelerated Shift Toward Electronic Trading  

Notwithstanding extreme volatility in the market, Tradeweb’s electronic volumes surged. Tradeweb’s broad suite of trading tools enabled participants to alter their behavior to suit changing market conditions without sacrificing the many benefits of electronic execution.

“Volumes were certainly up and robust on the platform,” Kirby continued. “What we did see a little bit was participants who had embraced different automated trading functionality and auto trading strategies tended to briefly revert more to a traditional electronic RFQ.”

Kirby discussed how the move toward RFQs as the preferred method of traditional trading rather than over the phone trading demonstrated a notable shift in behavior of market participants.

“Whereas in the past reverting to a comfort zone maybe meant going to the phone, we saw in this crisis reverting to a comfort zone really meant reverting to a traditional RFQ electronic trading, which I think speaks volumes to the level of comfort that the market has with electronic trading overall,” she said.

Impact of COVID-19 on Connectivity  

Tradeweb, like most companies across the globe, had to quickly shift priorities in response to the crisis to ensure that all clients, employees and operations remained connected and operationally sound in the wake of the unknown circumstances.

“In the beginning when this all started to happen, we were completely focused on connectivity and making sure that people’s connections were secure, that they were operational, that they were working, really just ensuring that people could come together and transact on our marketplace,” Kirby explained.

While this shift in priorities included a heightened focus on connectivity, Kirby shared how access to liquidity presented itself as a new challenge to the marketplace in March.

“Normally, if you’re a trader on a desk, you have your operations team nearby…you have other traders you can speak to, walk over to and see. And that went away essentially overnight, so it gave us a lot of opportunity as a trading platform to show to market participants what some of the benefits are of electronic trading,” she said.

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