STORY CONTINUES BELOW THESE SALTWIRE VIDEOSJACKSON HOLE, Wyoming - Preventing the $25 trillion U.S. Treasury market from seizing up in a future crisis, as it did at the onset of the COVID-19 pandemic, could mean having the Federal Reserve on standby for unlimited bond purchases when needed, a new analysis published Friday suggests.
But that didn't happen in March 2020, in large part because dealers simply did not have enough room on their balance sheets to handle the deluge of Treasury sales from investors panicked by the unknowns of a global pandemic. "The implications of dealer capacity limits for Treasury market resilience may worsen in future years because the quantity of Treasury securities that investors may wish to liquidate in a crisis is growing far more rapidly than the size of dealer balance sheets," Duffie told the gathering of central bankers."Backstopping the liquidity of this market with transparent official-sector purchase programs will further buttress market resilience.