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Strains in $23 trillion U.S government debt market intensify as Fed tightens

Section: Daily Dispatches

By Kate Duguid
Financial Times, London
Wednesday, March 30, 2022

Investors' ability to trade US government debt has deteriorated to its lowest point since the ructions of March 2020, deepening worries about the world's most important bond market as the Federal Reserve tightens monetary policy.

Liquidity, or the ease of buying and selling, in U.S. government securities has dropped since the beginning of this year, reaching levels not seen since the first months of the coronavirus crisis, according to an index compiled by Bloomberg.

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The deteriorating trading conditions have exacerbated this month’s price swings, with investors increasingly concerned about how well the market will function as the Fed starts reducing the size of its $9 trillion balance sheet.

Treasuries are already on course to post their worst quarter since at least 1973 after the Fed raised interest rates for the first time since 2018 this month in its attempt to battle inflation, which is running at its highest level in 40 years. It has also halted its crisis-era bond-buying programme. ...

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https://www.ft.com/content/3494abc9-0b87-4206-8ad3-9e09b5e11730

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