"US Treasuries are expected to provide excellent safe-haven services in a 'dash for cash' because of the anticipated depth and liquidity of the market in which they are traded, even during a crisis when many large investors are simultaneously liquidating their Treasuries," Stanford University business school professor Darrell Duffie wrote in a paper presented at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming.
Treasury trading nearly ground to a halt, imperiling the functioning of global financial markets, until the Fed jumped in to buy hundreds of billions of dollars of bonds that helped to free up space on dealer balance sheets. Future bouts of Treasury market illiquidity could also be made less likely with broader use of central clearing, Duffie wrote, as well as changing the way regulators assess bank capital levels.