Brookings Institution: Loose Ends in the US Treasury Market
By Dan Barnes
January 7, 2021, The Desk
A paper published by Nellie Liang, the Miriam K. Carliner senior fellow in Economic Studies at the think tank Brookings Institution and Pat Parkinson, a special advisor at lobby group the Bank Policy Institute, has proposed several structural changes in the US Treasury market intended to increase the provision of market liquidity in stress periods and thus increase market resilience.
The US Treasury market has been beset by scandal and unexplained activity for over a decade; in 2014 it saw a sudden, massive price movement and reversion – the ‘flash rally’ – that has been unexplained to date; manipulation of the market by JP Morgan over a seven-year period including 2014 – yet which agencies have not investigated as a cause of the flash rally – was uncovered and prosecuted in 2020; March 2020 also saw a withdrawal of liquidity by dealers during a massive market sell-off which led to “exceptionally wide bid-ask spreads and difficulty in executing transactions or finding liquidity in Treasury markets” according to members of the Federal Reserve’s Treasury Market Practices Group speaking in March 2020.
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