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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:SBNY). 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 2-year note 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.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Source: Investing.com
