The liquidity of the US Treasury market has largely rebounded following disruptions caused by the regional bank failures in March, including Silicon Valley Bank and Signature Bank (OTC:). This recovery came swiftly after a sudden liquidity plunge triggered by these failures, according to New York Fed economist Michael Fleming.
During the bank crisis in March, the bid-ask spread for all maturities expanded, with the surpassing highs from the pandemic-induced crisis of March 2020. The availability of securities at the best level in the order book also decreased during this period.
Fleming’s study used bid-offer spreads, order-book depth, and trade price impacts of recently auctioned two-, five-, and 10-year notes to illustrate the market’s behavior. While five- and 10-year Treasuries aligned with expectations, two-year notes exhibited higher-than-expected price impacts due to market volatility.
The bank failures prompted significant reductions in Treasury yields, specifically for the two-year yield which experienced its most dramatic fall since 1982. However, these metrics improved within roughly a month after the bank failures.
Despite the initial disruption, the resilience of the US Treasury market has been demonstrated by its swift recovery from these recent events.
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