Cracks Appear in World’s Biggest Bond Market as Fed Pulls Back
- Liquidity erodes amid a surge of volatility in yields
- Fed is reducing the amount of Treasuries it buys each month
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Warning signs are starting to flash at the regulators of the $22 trillion U.S. Treasury market, which is being whipsawed by volatility just as the Federal Reserve begins pulling back from its $80 billion-a-month buying spree.
Sparked by a report of surging inflation that led traders to move up the timetable for Fed’s first rate increase, the yield on two-year Treasury notes rose nearly 10 basis points Wednesday, its biggest move since March 2020. It capped a period of extraordinary volatility that led to the rockiest 30-year bond auction in a decade and drove a gauge of market liquidity to its most troubled level since the meltdown soon after Covid-19 hit the U.S.