Threats to U.S. Treasury market liquidity still exist, Fed says

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The U.S. Treasury market still runs the risk of abrupt freezes in liquidity like the one seen in March and April, as the COVID-19 pandemic roiled the financial system, a member of the Federal Reserve Bank of New York's Market Committee said on Friday.

NEW YORK - The U.S. Treasury market still runs the risk of abrupt freezes in liquidity like the one seen in March and April, as the COVID-19 pandemic roiled the financial system, a member of the Federal Reserve Bank of New York’s Market Committee said on Friday.

“However, while it is tempting to dismiss it as a once-in-a-lifetime shock, it is important to take time to reflect and assess if lessons can be learned that could make the Treasury market even more resilient to future shocks.” The buyers, Treasury market primary dealers, reported that customer transaction volumes increased from $400 billion a day in February to $650 billion a day in mid-March. In the market for buying and selling all Treasuries save for the most recently issued, the spread between the prices asked and those bid rose to an all-time high, nearly 30 times their normal level.

 

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