How do you solve a problem like US Treasuries?
The wild markets of March 2020 revealed the capacity for severe dysfunction in what should be the soundest market of all – US treasury bonds. Can any market be expected to cope with such conditions without extraordinary help?
In normal times the Federal Reserve Bank of New York publishes a monthly breakdown of its purchases of US treasury securities, showing the quantity of every single bill and bond bought. And in normal times, the spreadsheets it produces would hardly be riveting.
But March 2020 was very far from normal, and the Fed’s spreadsheets began to look decidedly odd.
The world’s financial markets, taking their lead from the US, were wilting. As economies began to shutter and all manner of participants scrambled to liquidate anything that could generate dollars, the most liquid part of the market – US treasury bonds – was beginning to buckle.