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Clearing the path for Treasury market resilience
- The U.S. Treasury market is the world’s deepest and most liquid market, and its resilience is critical for asset pricing and liquidity risk management. Maintaining liquidity is increasingly important as Treasury debt grows rapidly, placing greater demands on market infrastructure and intermediation capacity. Treasury debt held by the public has risen to almost 100% of GDP, and the Congressional Budget Office projects that it will rise to 120% in 2036. Treasury repo and reverse repo financing at primary dealers has grown to $6.1 trillion daily in December 2025, reflecting in part the large net lending by money market funds and large net borrowing by private funds.
- This paper updates our earlier paper in July 2025 to highlight significant progress since then on expanding central clearing for Treasury cash and repo. Expanded central clearing is one of the key regulatory initiatives designed to strengthen the resilience of Treasury market intermediation and represents a transformative change in Treasury market structure. Central clearing offers significant benefits by allowing more efficient netting of repo across market segments, expanding dealers’ balance sheet capacity, reducing counterparty risk, enforcing more standardized risk management, and providing more market visibility.
- We estimate, based on data in December 2025, that the substantial netting benefits from the continued rapid growth in the sponsored repo market at the Fixed Income Clearing Corporation (FICC) have increased further, to about $1.4 trillion. In addition, we estimate from primary dealer data as of December 2025, using a revised methodology, that up to $1.3 trillion additional balance sheet capacity can be created if all primary dealers’ Treasury repos and reverse repo were cleared. For comparison, primary dealers’ total net position in Treasury securities was $477 billion at the end of 2025.
- Central clearing practices also are evolving rapidly. Since July 2025, client access models are being expanded to meet the needs of different market participants, and two firms have applied and been approved to operate new Treasury clearinghouses.
- There has been notable progress on other reforms to strengthen Treasury market resilience. In December, the federal banking regulators finalized a rule to reduce the enhanced supplementary leverage ratio (eSLR) for the largest bank holding companies (BHCs) and its insured depository institutions. A reduced eSLR is less likely to be the binding capital constraint and thus less restrictive for low-risk, low-return activities like Treasury market intermediation. Given current risk-based capital requirements, the lower eSLR is not expected to lead to a meaningful reduction in required capital at the BHCs, indicating an increase in balance sheet capacity without raising their risks. In addition, reforms to enhance price transparency and data availability and official sector programs to support market liquidity have been implemented.
- Collectively, these reforms and ongoing enhancements will continue to provide substantial benefits. Ultimately, however, Treasury market resilience will also require efforts to reduce the rapidly growing amount of debt.
- This paper updates our earlier paper in July 2025 to highlight significant progress since then on expanding central clearing for Treasury cash and repo. Expanded central clearing is one of the key regulatory initiatives designed to strengthen the resilience of Treasury market intermediation and represents a transformative change in Treasury market structure. Central clearing offers significant benefits by allowing more efficient netting of repo across market segments, expanding dealers’ balance sheet capacity, reducing counterparty risk, enforcing more standardized risk management, and providing more market visibility.
- We estimate, based on data in December 2025, that the substantial netting benefits from the continued rapid growth in the sponsored repo market at the Fixed Income Clearing Corporation (FICC) have increased further, to about $1.4 trillion. In addition, we estimate from primary dealer data as of December 2025, using a revised methodology, that up to $1.3 trillion additional balance sheet capacity can be created if all primary dealers’ Treasury repos and reverse repo were cleared. For comparison, primary dealers’ total net position in Treasury securities was $477 billion at the end of 2025.
- Central clearing practices also are evolving rapidly. Since July 2025, client access models are being expanded to meet the needs of different market participants, and two firms have applied and been approved to operate new Treasury clearinghouses.
- There has been notable progress on other reforms to strengthen Treasury market resilience. In December, the federal banking regulators finalized a rule to reduce the enhanced supplementary leverage ratio (eSLR) for the largest bank holding companies (BHCs) and its insured depository institutions. A reduced eSLR is less likely to be the binding capital constraint and thus less restrictive for low-risk, low-return activities like Treasury market intermediation. Given current risk-based capital requirements, the lower eSLR is not expected to lead to a meaningful reduction in required capital at the BHCs, indicating an increase in balance sheet capacity without raising their risks. In addition, reforms to enhance price transparency and data availability and official sector programs to support market liquidity have been implemented.
- Collectively, these reforms and ongoing enhancements will continue to provide substantial benefits. Ultimately, however, Treasury market resilience will also require efforts to reduce the rapidly growing amount of debt.
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