The United States bond market never officially shuts down, but it observes the holiday trading schedule recommended by the Securities Industry and Financial Markets Association (SIFMA).
Bond market holidays are not enforced, but merely recommended. However, the U.S. Treasury market has been closed for trading on Columbus Day dating back to the depression-era, so SIFMA again recommended it remained closed.
The reason for this is more practical than historical.
Columbus Day is a bank holiday. Most banks and banking institutions are closed, as is the Federal Reserve Banks in New York and Washington. Columbus Day is also a partial federal holiday with many department and services suspending operations, including the U.S. Postal Service.
The closing of the Fed also shuts down the Federal Reserve Wire Transfer system (Fedwire). Fedwire is the national electronic payment system to transfer funds through Federal Reserve Banks. With the Federal Reserve, the Fedwire and large money center banks all closed, the U.S. government bond market is basically forced to shut down as well. There are no bond auctions because the issuer of Federal Debt, the U.S. Treasury, is also closed.
Bond trading is also closed in U.S. agency, municipal and corporate debt.
So why is the stock market open?
The bond market in the U.S. is less centralized than the equity market. Most government bond trading occurs through over-the-counter exchanges like ICAP or BrokerTec. Interest rate futures, on the other hand, trade on an exchange that remains open. The same is true of the stock market.
The NYSE and NASDAQ are the two prominent centralized stock exchanges and do not close for the Columbus Day holiday.
This article was originally published on Oct. 14, 2014.