Halloween is still over a month away, but here’s a scary chart of Bloomberg’s US Government Securities Liquidity Index. The higher the score, the less liquid the $27tn Treasury market is. So according to this index — which is derived from how dispersed Treasury prices are from a smoothed yield curve — the US government bond market is now less liquid than it was at the peak of the March 2020 chaos.
Big trades make a bigger splash than they used to, but the deterioration seems mostly caused by higher interest rate volatility, which is now coming down a bit. The author — Michael Fleming, the head of capital markets studies at the NY Fed’s research group — does explore the discrepancy between these measures of liquidity and that shown by the Bloomberg’s index, but mostly shrugs it off: This research should probably focus on the Bloomberg index’s underlying composition.