Commentary on The Benchmark U.S. Treasury Market: Recent ...

Thomas C. Glaessner
Commentary
his thought provoking paper by Michael Fleming raises more correlated with spread products and that these forms
several interesting issues in light of my experience, and of debt will be a better hedge than Treasuries—despiteT
makes an effort to establish some empirical regularities disadvantages in such areas as market size and liquidity.
relating to different benchmark securities. After a brief review
of the paper’s major conclusions, I will address a set of public
policy issues that the paper raises.
Public Policy Issues Raised
by the Paper
Major Conclusions of the Paper Although the Fleming paper presents some interesting
empirical correlations, relationships, and trends, it leaves the
First, the premise of the Fleming paper is that the value of the reader asking several questions—all of which have a public
Treasury market as a benchmark will be called into question bypolicy implication and none of which are actually discussed
improved fiscal performance. This conclusion is itself that explicitly.
predicated on a trend shift in productivity growth and greater These questions include:
fiscal restraint that will lead to extensive efforts to pay down
What characteristics should a benchmark security
debt over a protracted period.
actually have and, more basically, what do we mean by a
Second, the paper contends that recent worldwide shocks
“benchmark”?
and events including the Long Term Capital Management
Is the premise of the paper ...