Key measure of turbulence in Treasuries reaches highest level since 2020 coronavirus crisis
These international events have added to a powerful pullback in the US Treasury market that accelerated after the Federal Reserve last week deliveredand signalled significantly tighter monetary policy to come.
With investors on the sidelines, liquidity in the Treasury market — the ease with which traders buy and sell — has deteriorated to its worst level since March 2020, according to a Bloomberg index. Poor liquidity tends to exacerbate price swings, worsening volatility. The two-year debt was sold with the widest difference — or “tail” — between what was expected just before the auction and where it actually priced since the 2020 Covid-induced market ructionsThe Treasury department will auction off $36bn in seven-year notes on Wednesday. The seven-year note has struggled to attract demand in less volatile moments, so the environment this week could pose a challenge.
According to their latest projections, most Fed officials now expect the federal funds rate to rise from its current target range of 3-3.25 per cent to 4.4 per cent by year-end. By the end of 2023, Fed officials expect interest rates to stand at 4.6 per cent.
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