Treasuries make a break-out

US treasuries make up the largest, most liquid class of securities. Apart from providing investors with dollar exposure, they are widely accepted as collateral and are used by US broker-dealers for financing. Their only drawback is that trades have to be settled in the US, via Fedwire, and all custody has to be through book-entry accounts at Fedwire, which is operated by the Federal Reserve.

Not surprisingly, custodians, particularly international central securities depositories (ICSDs) such as Cedel Bank and Euroclear, have sought ways to obtain the right to settle such trades themselves. Being able to settle trades in US treasuries outside the US would open up their use as global collateral, particularly in repurchase agreements denominated in illiquid currencies or where, as in some emerging markets, there is no domestic market at all. In this way, US treasuries would help oil the international capital markets machine.

Now, thanks to the...