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The Evolution of Treasury Market Liquidity: Evidence from 30 Years of Limit Order Book Data
This paper uses order book and transactions data from the U.S. Treasury securities market to calculate daily liquidity measures for a thirty-year sample period (1991–2021). We then construct a daily index of liquidity from bid-ask spreads, quoted depth, and price impact, reflecting the fact that the varying measures capture different aspects of market liquidity. The index is highly correlated with liquidity proxies proposed in the literature, but is more sensitive to short-term drivers of liquidity, suggesting that it better measures contemporaneous liquidity (as opposed to expected future ...