© Reuters. U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration
By Michael S. Derby
NEW YORK (Reuters) – An increase in government bond central clearing could increase the resilience of a market that forms the backbone of the global credit system, a top New York Fed staffer said in a speech Thursday.
Michelle Neal, who heads the bank’s Markets Group, said more central clearing could help the Treasury market both in times of stress and even in more placid conditions.
“As more trades are centrally cleared, strains related to spikes in settlement fails could be avoided or reduced, easing a
constraint on dealer intermediation capacity,” Neal said in remarks prepared for a conference in New York.
“Increased central clearing could impact the speed with which trading models evolve, as market participants are increasingly connected by central clearing,” Neal said, adding “increased central clearing could also lead organically to greater data availability and transparency.”
Neal’s remarks arrived amid ongoing concerns about the state of the government bond market, which many fear is not well suited to deal with a period of stress absent government intervention.
Central clearing involves a third party entity to facilitate trades between financial firms, reducing risks those trades will faces problems.