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New York City- Good morning. Let me begin by expressing my thanks for inviting me to join you today.
Collectively, everyone here shares the privilege of working in the best capital markets in the world. With such a privilege comes responsibility. To maintain our leadership status and to accrue the associated benefits, certain characteristics must define our marketplace. These include investor confidence, market integrity, and competitiveness. We must also recognize that the responsibility for maintaining and strengthening these traits is borne by both the public and private sectors.
We all have a role to play in enhancing the competitiveness of our capital markets. In doing so, we leverage the important contribution that competitive and efficient capital markets make to our nation's economy. Such efforts also bring direct benefits to investors and users of capital.
Competitive capital markets foster innovation and serve to attract investors, capital, and talent. In turn, these advantages reinforce and strengthen the competitive position of our economy and improve the lives of all Americans. The confidence displayed by global investors in our deep, liquid markets is a direct byproduct of the integrity and transparency of our markets.
Certainly all of that is true when we focus on the U.S. Treasury marketplace. As the Assistant Secretary of the U.S. Treasury for Financial Markets, I can assure you how much we value the symbiotic relationship that we have with Treasury market participants. Because our operating principles of transparent, regular, and predictable debt management practices are well established, buyers of Treasury securities come to us in greater numbers, bid with more confidence, and in larger amounts. Our predictability, coupled with our unitary financing approach to debt issuance, increases the depth and liquidity of the Treasury marketplace and results in lower cost borrowing for the government.
For investors, the U.S. Treasury market represents a safe, broad and liquid universe for investing their capital. U.S. Treasury securities are the global standard by which all other fixed income instruments are valued. In addition to its risk free status, the Treasury market is diverse. Instruments range across the entire investment spectrum: from bills to notes to bonds. Due to this range of options, buyers can select the securities that best meet their objectives.
In addition, the Treasury market enables investors to diversify their exposure across nominal and real securities, and hence their exposure to the risk of inflation. Treasury inflation protected securities (TIPS) currently exceed $400 billion in market value and span the yield curve out more than 10 years. As a result of the presence of these instruments, the market pricing of inflation risk is now better quantified dynamically through the actions of market participants. Even if investors do not invest in TIPS, they benefit from the additional information provided to the marketplace by the presence of these securities. TIPS are integral to both the Treasury portfolio and market participants and our commitment to the program remains strong.
Additional benefits to investors include scale and liquidity. Treasury issues over $4 trillion in marketable debt each year, with trading volume exceeding over $500 billion per day. With the existence of robust swaps, options, and futures trading based off of the cash market in Treasuries, investors have the benefit of additional liquidity and flexibility.
Just as open economies are best suited to grow, the same can be said of capital markets. Open investment and the free flow of capital are essential to healthy capital markets. Let me take this opportunity to assure investors from around the world that they are welcome in our markets. Just last month, President Bush released his Open Investment Policy. He stated that, The United States unequivocally supports international investment in this country and is equally committed to securing fair, equitable, and nondiscriminatory treatment for U.S. investors abroad.
Certainly we have embraced this philosophy as it relates to the U.S. Treasury marketplace. Our market is truly global and buyers of our securities are increasingly diverse.
My comments this morning have been about the importance and benefits of competitive capital markets. I'd now like to discuss one way we can approach this important goal.
As policymakers, we need our regulatory environments to be optimally positioned in order to allow our markets and our economy to compete. However, regulatory approaches, like the markets themselves, must be flexible, dynamic, and globally oriented.
As participants within the Treasury marketplace, we all recognize that by comparative standards, our marketplace is lightly regulated. This is a direct result of the operating integrity, transparency, and sound practices that characterize the actions of both the Treasury debt managers and the various market participants. Every stakeholder benefits from the current regulatory regime, and thus has strong incentives to act in accordance with principles that enhance the stability and integrity of the marketplace. By doing so, participants will help to ensure that the liquidity, efficiency, and quality of our market remains the finest in the world.
From a regulatory perspective in the U.S., we have historically largely relied on rules. There are clear benefits to knowing and following the rules, but we should not limit ourselves by creating and relying on an ever expanding rulebook. Given the pace, scale, and complexity of the global capital markets in which we operate and compete, we will by necessity need to complement our rules by developing, applying, and consistently updating principles and best practices to meet well defined objectives.
The introduction of the principles-based framework outlined by the Treasury Market Practices Group (TMPG) is encouraging. The principles and guidelines comprising the document lay a strong foundation for all stakeholders. In particular, the document provides a framework for market participants to evaluate and enhance their current activities in the secondary markets and to fulfill their responsibilities as stakeholders in the Treasury market. The guidelines are practical, and possess the flexibility to deal with the global and dynamic environment in which stakeholders operate.
There are significant benefits in having guidelines and clearly defined practices complement regulations. I should add it is not just registered broker-dealers who are encouraged to subscribe to these guidelines. All Treasury market participants should adopt and implement them and should hold each other accountable. We all benefit from the high confidence in and integrity of the Treasury market and we all stand to lose significantly if that integrity is challenged.
It is important to recognize that while much effort went into developing the practices comprising the document, the real test comes with how stakeholders collectively apply these practices. Success will be determined by how market participants interpret and implement these practices, and how market practices evolve from this point forward. The introduction of these practices represents another step in the continual process of enhancing our Treasury market. Surely more steps will follow as participants contribute to efforts that serve to define, update and enhance these practices.
The practices put forth by the TMPG represent a positive development as the application of principles creates flexibility, as well as place pressure on all participants to follow their spirit and intent. While these practices and guidelines complement existing rules, we will of course continue to monitor the markets. Along with us, each of you can help ensure liquid and efficient Treasury markets.
I want to recognize Tom Wipf for his leadership and for chairing the TMPG and guiding the group to develop these best practices. Tom, I look forward to the panel discussions, and thank you and the others on the Treasury Market Practices Group for your efforts and initiative. I also want to acknowledge SIFMA for its many constructive contributions, efforts, and its ongoing initiatives aimed at further enhancing the U.S. Treasury market. All of this strikes at the core of collective responsibility.
Let me conclude my remarks by stating how grateful we are at the U.S. Treasury Department for the numerous contributions made by the Federal Reserve Bank of New York and for its efforts in enhancing the treasury marketplace.
Our combined efforts serve to enhance investor confidence by improving the integrity, efficiency, orderliness, and competitiveness of the U.S. Treasury market. In doing so, we facilitate our economy's ability to compete and thrive.
Thank you.