U.S. Treasury volumes and TIPS activity increases on Fed and inflation reports in 2017 and 2018

Since the start of 2017, Tradeweb U.S. Treasury volumes1 have risen relative to average daily volumes (ADV) on the Federal Open Markets Committee (FOMC) statement and inflationary data releases (CPI, PCE, AHE), compared to levels from the first hike in December 2015 through the end of 2016 (the earlier part of the hiking cycle).

• U.S. Treasury volumes were 22% higher since 2017, on FOMC days, than relative volumes from December 2015 through the end of 2016.
• Treasury activity was more than 8% higher on release dates for FOMC statements and inflation data since the beginning of 2017 than the first year and two weeks of the hiking cycle.
• TIPS activity was 20% above typical levels on both FOMC dates and for Average Hourly Earnings (AHE) since the start of 2017, but has been relatively flat on CPI (Consumer Price Index) release dates.

U.S. Treasuries

U.S. Treasury volumes on Tradeweb have averaged 29% above their respective monthly ADVs on days of the eight FOMC announcements since the start of 2017. This is 22% higher than Treasury trading activity in the period between the first interest rate hike by the Fed in 2015 through 2016 – and has climbed steadily since September 2017. 

Volumes on the monthly release dates of CPI and PCE2 have also exceeded their respective monthly ADVs, and have both risen approximately 10% since January 2017 v. December 2015 and 2016. Although Average Hourly Earnings (AHE) has seen generally subdued volumes, relative Treasury activity on Tradeweb is up more than 8% compared to the previous period.  

Conversely, continued strong economic indicators such as Nonfarm Payroll, non-manufacturing PMI3, and Retail Sales have generally seen subdued volumes on these days relative to monthly ADV. Since 2017, volumes on Retail Sales and PMI (both manufacturing and non-manufacturing) have generally held at or below relative levels than in the earlier part of the hiking cycle.

Tradeweb U.S. Treasury Volume on Announcement Dates as a Percent of Monthly ADV

TIPS

With the Fed largely focused on inflation as a driver for policy, the TIPS market has responded in-kind. As a percent of overall U.S. Treasury volumes on Tradeweb, TIPS activity was 23% above average on the day of the FOMC releases v. monthly averages since January 2017. This compares to just 7% in the earlier part of the hiking cycle through the end of 2016. 

TIPS activity has risen 26% on AHE release dates since the start of 2017 vs. the earlier period of rate hikes in 2015 and 2016, while the TIPS market has become increasingly focused on wage pressure and its impact on inflation and Fed policy. However, inflation metrics such as PCE (favored by the Fed) and CPI have generally seen relative volumes hold or decline in the past year. 

Surprisingly, activity for CPI releases has been noticeably lower than both the FOMC statement and AHE, despite CPI directly impacting TIPS pricing.  The decline on PCE days could also suggest a refocus in the market towards wage pressure vs actual inflation prints. 

Tradeweb U.S. TIPS Relative Volume on Announcement Dates as a Percent of Monthly ADV

1 Numbers and percentages are averages over the period of the noted value as a percentage of average daily value for the respective month of each data release. Volumes reflect activity on the Tradeweb Institutional platform, and exclude cross-product trades, such as swap spreads and other asset swaps.

2 Although PCE releases tend to occur around month-end, the correlation between data surprises and relative volumes has been decent and fairly consistent, suggesting PCE impacts volume activity.

3 We have not considered manufacturing PMI, since the release coincides with the first trading day of the month, which tends to see above average volumes relative to the rest of the month. Furthermore, unlike PCE, correlation between the data surprises in PMI and relative volumes has been fairly low (both directionally and in magnitude).