Enhancing the Liquidity of U.S. Treasury Securities in an Era of Surpluses

Paul Bennett, Kenneth Garbade and John Kambhu

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: This paper presents three proposals intended to enhance liquidity in the market for U.S. Treasury debt: making principal and interest STRIPS maturing on a common date fungible with each other, aligning the maturity of 2-year debt with either bill maturities or the maturities of longer-term debt, and establishing a facility to allow market participants to exchange (with the Department of the Treasury) single-payment securities with similar, but not identical, maturities. The proposals would enhance liquidity by improving the substitutability of identical and very nearly identical Treasury liabilities, and by increasing the integration of the markets for bills, notes, bonds and STRIPS. The proposals would be complementary to, rather than a substitute for, the initiative to buy back outstanding debt announced in August 1999.

Date: 1999-11-23
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