Abstract - High Frequency Trading in the U.S. Treasury Bond Market during the Financial Crisis?

We study the behavior of high frequency trading (HFT) in the U.S. Treasury market during the financial crisis period from 2008 to 2009. We document that during the peak of the crisis highfrequency trading decreased substantially, liquidity worsen, and pricing errors increased. Using a reduced-form estimation, we find that HFT causes an improvement in liquidity in the two-yearnd five-year U.S. Treasury market, but not in the ten-year U.S. Treasury market, were risks were perhaps highest. This raises the question of whether the improvement in liquidity by HFTs documented in prior literature is resilient.

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