US Treasury Market Lacks Liquidity As Government Bonds Suffer From The Worst Week In Years

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Signs of trouble continue to appear in the world’s largest and most liquid government securities market, with government bonds recording their worst week in years and the US Federal Reserve raising interest rates.

All six indices used to monitor the depth of the U.S. Treasury market – or the ease with which securities can be bought and sold without significantly affecting their prices – remained in exceptional conditions for March, according to JPMorgan Chase & Co. data.
JPM,
+ 0.87%

Liquid pressure dashboard. This was the case before Friday’s wide-ranging and aggressive sale at the Treasury – which sent 2-
TMUBMUSD02Y,
2,280%

And yields for 10 years
TMUBMUSD10Y,
2.478%

To the largest weekly increases since June 2009 and September 2019, respectively. Yields and prices are moving in opposite directions – so rising yields reflect a decline in demand and prices in the Treasury.

Source: JPMorgan Chase & Co.

The decline in the depth of the finance market has corresponded with the recent significant rise in yields, with investors taking into account the rise in interest rates in the first quarter of the Fed since 2018 and the likelihood of larger moves. The biggest motive behind the market’s liquidity is the narrative of a US central bank that “pushes interest rates higher,” according to JPMorgan interest rate strategist Alex Rover.

“We have had conditions for several months where the depths of the cash market have been low, and part of that is due to the backed interest rate and being very sensitive to Fed news and inflation,” Rover said by phone Friday. “That means it can be very painful to hold bonds, and overall, it feels like we are not seeing as many end users buying Treasury bonds as we had in the past, when demand is lower.”

JPMorgan’s dashboard captures more than two dozen different market conditions indices, most of them in the finance market. In total, 10 of the monitored indices flashed in “red” or “amber” status as of Thursday, before the market action on Friday.

Friday, two-
TMUBMUSD02Y,
2,280%

And returns of the Treasury for 10 years
TMUBMUSD10Y,
2.478%

Climb to the highest levels since May 6, 2019, while the gap between 5-
TMUBMUSD05Y,
2.543%

And yields for 30 years
TMUBMUSD30Y,
2.589%

Swayed on the verge of reversal.

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