Measuring Treasury Market Liquidity

57 Pages Posted: 29 Jul 2001

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001


This paper examines a comprehensive set of liquidity measures for the U.S. Treasury market. The measures are analyzed relative to one another, across securities, and over time. I find highly significant price impact coefficients, such that a simple model that explains price changes with net order flow produces an R2 statistic above 30% for the two-year note. The price impact coefficients are highly correlated with bid-ask spreads and with episodes of reported poor liquidity (such as the fall 1998 financial markets turmoil). Quote and trade sizes correlate modestly with these episodes and with the other liquidity measures, as do yield spreads between on-the-run and off-the-run securities. In contrast, trading volume and trading frequency are only weakly correlated with these other measures, suggesting that they are poor liquidity proxies. The various measures are positively correlated across securities, almost without exception, especially for Treasury notes.

Keywords: Liquidity, Trading volume, Bid-ask spreads, Quote sizes, Price impact

JEL Classification: G14, H63

Suggested Citation

Fleming, Michael J., Measuring Treasury Market Liquidity (July 2001). FRB of New York Staff Report No. 133, Available at SSRN: or

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)


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