Typically, investors expect selling and buying in the world’s largest bond market to be easy. Nonetheless, experts say that for most of 2022, the process has been tricky. A trader can hold US treasury bonds worth $400 million, which is not the $24 trillion market’s outsize quantity. It involves breaking up smaller chunks from the order. Meanwhile, the United States Treasury bond struggled with a massive scare during the beginning of Covid-19.
Fears about the global economic collapse have led to sudden lucidity and price slump. Right now, most asset prices face a dramatic sell-off, a recession looms, and the Federal Reserve struggles to curb inflation. In simple terms, the world’s largest bond market has cracked. Liquidity in the US bond market has recorded its worst levels since mid-March 2020. Liquidity marks a crucial measure that determines how the market functions.
Generally, it has faced a dramatic decline since that time. JP Morgan reports indicate that the Market depth has recorded the worst levels since March 2020. Market depth is the measure of liquidity referring to traders’ ability to sell and buy treasuries, minimizing the moving prices. The meltdown in the UK government duty has accelerated vulnerability anxiety in large bond markets. Nevertheless, bond investors are merely worried about the UK crisis replay.
The ongoing crisis has impacted pension funds that placed bets on the bonds’ direction at a large scale. Thus, many feel worried this unforeseen selling wave might overwhelm the shaky infrastructure in the US bond market. Regulators have announced several measures to improve the market functions. An annual conference in New York will discuss ways to enhance the market's resilience.
The Exchange & Securities Commission unveiled two ambitious proposals to help boost resilience in the market. On the other hand, the treasury is consulting to purchase illiquid bonds in another bid. The Federal Reserve has helped to stabilize such financial crises in the past. Right now, they intend to suspend ongoing efforts to release some securities from its balance sheet.
Overall, US bond market investors believe the Fed might restart a quantitative programme to ease the situation. The US Treasury market’s vulnerability is a vital concern for investors since it impacts anyone with foreign governments’ investments or pension funds. Hence, it places the de facto borrowing benchmark in a critical position for safekeeping. Above all, price collapse or sustained challenges impact currencies, corporate bonds and stocks globally.
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