Staff Reports
The Evolution of Treasury Market Liquidity: Evidence from 30 Years of Limit Order Book Data
Previous title: β€œAn Index of Treasury Market Liquidity: 1991-2017”
November 2017 Number 827
Revised January 2023
JEL classification: G12

Authors: Tobias Adrian, Michael J. Fleming, and Erik Vogt

This paper uses order book and transactions data from the U.S. Treasury securities market to calculate daily liquidity measures for a thirty-year sample period (1991–2021). We then construct a daily index of liquidity from bid-ask spreads, quoted depth, and price impact, reflecting the fact that the varying measures capture different aspects of market liquidity. The index is highly correlated with liquidity proxies proposed in the literature, but is more sensitive to short-term drivers of liquidity, suggesting that it better measures contemporaneous liquidity (as opposed to expected future liquidity). In March 2020, in particular, the index peaks at a level commensurate with that seen during the 2007–09 global financial crisis, whereas the liquidity proxies peak at much lower levels. Significant drivers of market liquidity include announcements, implied volatility, and the extent to which high-frequency traders are present in the market.

Available only in PDF
Author disclosure statement
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.   Close