Home Markets Treasury sell off in February highlights ongoing liquidity risk -Fed

Treasury sell off in February highlights ongoing liquidity risk -Fed

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The Treasury Department is pictured in Washington, U.S., April 25, 2021. REUTERS/Al Drago

A bruising bond market sell-off earlier this year appears to remain high on the minds of Federal Reserve officials, who in a report on Thursday singled out the event as illustrative of continuing liquidity issues in the $21 trillion U.S. Treasury market.

The Feb. 25 drubbing followed a historically poor auction of 7-year Treasury notes and sent yields surging as market liquidity evaporated in minutes. That day’s negative return for Treasuries overall of minus 0.72%, according to ICE BofA bond index data, stands as the largest loss of the year and among the largest in the last 12 months.

The event, coming less than a year after the Fed had to inject $2 trillion into the bond market in the space of about five weeks to keep it from a complete melt down, “highlighted the importance of continued focus on Treasury market resilience,” the Fed said in its semi-annual…

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