The market for U.S. Treasury securities experienced extreme stress in March 2020, when prices dropped precipitously (yields spiked) over a period of about two weeks. This was highly unusual, as Treasury prices typically increase during times of stress. Using a theoretical model, we show that markets for safe assets can be fragile due to strategic interactions among investors who hold Treasury securities for their liquidity characteristics. Worried about having to sell at potentially worse prices in the future, such investors may sell preemptively, leading to self-fulfilling “market runs” that are similar to traditional bank runs in some respects.
Fleming and Ruela take a first look at the U.S. government’s new 20-year bond, using a short sample of available data to describe its trading activity and liquidity.
n June 2014, settlement fails of U.S. Treasury securities reached their highest level since the implementation of the Treasury fails charge in May 2009, attracting significant attention from market participants.