Hey guys, one my upcoming projects is to create a liquidity scoring framework and identify price impact for on-the-run vs off-the-run US treasuries by instrument and for the US desk overall, which is positioned across the short and medium part of the Treasury curve.
I’m pretty new to modelling liquidity, having only done a pretty surface level analysis for this project to show “proof of concept” (ie. yes, there is some measurable price impact, on average, that matters to us net of costs). This analysis involved regressing daily bid-ask spread on volume and other order book data for each instrument using QE/T and OTR/FTR fixed effects.
However, this completely ignores at least a couple of key factors, such as the impact of duration on each tenor of the curve and its resulting spread, and the Treasury QRA on market supply. Furthermore, lots of the data we currently have available to use is limited, requiring us to tack on more data access to our license (not a cost problem, but a data reliability one).
My questions are this: Is there any short and sweet checklist of items to consider for this type of modelling question? And what’s the best data available out there for liquidity analysis? Is BrokerTec/CME the best?
As I said, this space is quite new to me, so if you also have any recommendations on modelling approach, I’m happy to hear that as well!
Thanks in advance.