Interviews/Studies Speed Trader Study Shows Treasuries Hurt When Breaking News Hits

High-frequency trading in the U.S. Treasury market makes it harder for investors to buy and sell bonds when news events cause prices to move, according to the Bank of Canada.

Researchers studied how liquidity changed as algorithmic-trading programs, which are much faster than people, reacted to economic indicators including the unemployment rate, home sales and inflation.

They examined trades on ICAP Plc (IAP)’s BrokerTec trading system from January 2006 to December 2011, putting their findings in a paper released this month. The $12.3 trillion Treasury market is the world’s largest debt market.

When economic data isn’t being released, they “improve price efficiency,†the researchers wrote in a working paper. That means automated trading narrows the difference between prices to buy and sell bonds.

The Bank of Canada report didn’t examine the subject of market manipulation.