At a House Financial Services Committee hearing on Wednesday, Rep. Frank Lucas (R-OK) questioned Sec. Scott Bessent about treasury market volatility.
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00:00is recognized for five minutes. Thank you, Mr. Chairman. Mr. Secretary, as the dust has
00:04continued to settle after last month's episode of Treasury market volatility,
00:08can you give an updated assessment of those events and how would you characterize the
00:12functioning of the market during that period? Bring the dust up in Treasury markets.
00:22The market was very well functioning. It was volatile, but the underlying infrastructure
00:29worked quite smoothly, sir. Does the Treasury Department have the tools necessary to address
00:34market volatility? You've said you may increase the use of the buyback program. Are these or other
00:41authorities that—are there other authorities that might be helpful to address the challenges of the
00:45market? Yes, sir. We have a very large toolkit that we can deploy, as does the Federal Reserve.
00:53Taking a step back, Mr. Secretary, can you provide us with a sense of what regulations
01:00the administration is working on to bolster resilience in the Treasury market and the timelines
01:06when you would expect those changes to be announced? This is a core issue on the task force I and a
01:10number of my colleagues are working on. Sir, the auction sizes, the current issuance sizes
01:17leave us well positioned to address potential changes in borrowing needs. I can tell you that
01:22investor participation in auctions. There's been broad investor support. Our weighted average maturity
01:30is about 61.2 months, which is quite fulsome, and we have implemented a buyback program with two
01:38objectives, liquidity support and cash management. One last question along that line. I've long said
01:45that the administration should look at reforming regulations like the supplemental leverage ratio
01:49to relieve some of the constraints that market participants are facing in the Treasury market.
01:54I hope you'll consider looking at that. Sir, Treasury does not look at that, but I believe that it is
02:01a high priority for the three regulators, the OCC, the FDIC, and the Federal Reserve. Thank you.
02:11As the SEC continues to implement their clearing rule, a number of firms, including those outside the United
02:18States, are looking to provide clearing services for U.S. Treasuries and their derivatives.
02:24How are you working with the SEC and the CFTC to ensure the integrity of the Treasury markets
02:31as these firms look to intermediate? Sir, the Treasury market is a global market and we
02:38welcome new participants and we want to make sure that best practices employed in the U.S. are also
02:50employed globally. The reason I ask that is, and if you could specifically comment on the clearing of
02:57U.S. sovereign debt outside of the United States, what risk could that potentially present?
03:04And I come at that from the perspective, if there's a challenge in the market, if it's a U.S.-based
03:11entity, then the regulators who would make the difficult decisions are here. If it's outside of
03:17the United States, they might have a different perspective. We are constantly studying that,
03:24sir. As of now, we do not believe that it presents a risk, but I will, as we continue our studies,
03:32I will have my staff interact with your team. Absolutely, Mr. Secretary. And one final question.
03:38Primary dealerships has become an expensive proposition for firms, which in one explanation
03:46for participants leaving the market, it's one of the many explanations, should we be looking at ways
03:51to make the environment friendlier to investors wanting to become primary dealers? Sir, we saw at the
03:59recent auction very low participation by the primary dealers, which tells me that there may be a regulatory
04:10function there that is preventing them from using their balance sheet for the benefit of the U.S. Treasury.
04:16So clearly the task force that Chairman Hill was kind enough to set up and yourself, we have work to do.
04:24Thank you, Mr. Secretary. Would you yield? I would yield to the gentleman from Michigan. Thank you.
04:29And I can get my China question in, so I appreciate my-