Economics

There's Lots of Liquidity in Treasuries, Except When Needed Most

  • N.Y. Fed blog says trading affected at times of market stress
  • Liberty Street post cites market-structure change, competition
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Sudden spikes of illiquidity have increased in the $12.8 trillion Treasury market, making it more challenging for investors trading government securities during times of stress, according to research from the Federal Reserve Bank of New York.

By most measures, Treasury-market liquidity has returned to precrisis levels, yet events such as the flash rally in Treasury yields on Oct. 15, 2014, seem to have become more common, according to research released Tuesday by New York Fed analysts. While liquidity -- or the ability to buy and sell debt without causing exaggerated price swings -- has stabilized, the potential for sudden bouts of illiquidity has increased and is best described as ‘liquidity risk,’” the research states.