From Bloomberg, today:
The Justice Department has begun an examination of trading in the U.S. Treasury market, following the outlines of its successful cases against Wall Street’s illegal practices in foreign currencies and other businesses, said three people familiar with the inquiry.
The government is also continuing to look into possible collusion in gold and silver markets and in trading around certain oil benchmarks, the people said.
Though the latest inquiry into Treasury trading is in its earliest stages, investigators are said to be probing whether information is being shared improperly by financial institutions. [Emph. added]
One can’t help but appreciate (if not savor) the irony. Five years after Dodd-Frank severely limited the ability of banks to make markets in Treasurys, now the federal government is apparently investigating banks for . . . rigging the Treasury market! I for one have no clue what caused the government to start its investigation (but I do have a guess), or whether any wrongdoing is going on. But the Treasury market is huge and liquid–not the sort of place where it’s easy to get an unfair advantage. Anyway, the best way to prevent the sort of hijinx the feds seem to be looking for is to ensure that the market is made up of so many well-capitalized participants that the economics (and logistics) of collusion just don’t work. Unfortunately, the effect of the Volcker rule is just the opposite. So instead we get round after round of investigations into market-rigging. I can’t wait to hear what the feds turn up in the gold and energy markets.
What do you think? Let me know!