US 10-year three percent yield in April boosted FX, bond trade volumes

Currency and US Treasury trading volumes picked up in late April when benchmark 10-year US yield reached 3 percent, its highest level in more than four years, data released by NEX Group plc showed on Wednesday. Daily volume in spot foreign exchange on NEX's EBS platform, one of the largest currency trading platforms, averaged $83.4 billion last month, up 10 percent from a year earlier but down from 10 percent from March, NEX said.
The daily amount of cash Treasuries changing hands on NEX's BrokerTec system averaged $155.1 billion in April, down 7 percent from a year earlier and 18 percent lower than March, it said. NEX, formerly known as ICAP, is a financial technology company that matches buyers and sellers of bonds, swaps and currencies.
"US Treasury cash volumes were lighter relative to previous months and the higher volume days came towards the end of the month when the 10 year note yield closed in on 3 percent and speculators debated the impact of the level," NEX said in a statement.
Last week, US 10-year Treasury yield broke above the 3-percent milestone on signs that domestic inflation was rising closer to the Federal Reserve's 2-percent goal and worries about more government borrowing to fund a growing federal deficit.
"Towards the end of the month, rising yields on US Treasuries led to a stronger USD (US dollar) and an increase in volumes as short and long term players alike looked to flip their USD positions," it said. Separately, the average daily volume of US repurchase agreements (repo) was $233.6 billion in April, down 12 percent from March but up 10 percent from a year earlier.
Banks and Wall Street use the repo market to raise overnight cash to fund loans and trades by using Treasuries and other securities as collateral. In April, repo rates were running higher than the interest on excess reserves or what the Federal Reserve pays banks to leave their excess reserves with the central bank.
Currently, the interest on excess reserves is 1.75 percent. Cash investors seemed to fund fewer repos last month as they preferred the higher interest rates on Treasury bills due to a surge in issuance from the US government, according to NEX.