{"id":1717528,"date":"2022-10-31T06:00:06","date_gmt":"2022-10-31T10:00:06","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1717528"},"modified":"2022-10-31T06:03:54","modified_gmt":"2022-10-31T10:03:54","slug":"is-trouble-brewing-underneath-the-bond-market","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/is-trouble-brewing-underneath-the-bond-market\/","title":{"rendered":"Is Trouble Brewing Underneath the Bond Market?"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">14<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fis-trouble-brewing-underneath-the-bond-market%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1717528&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><p class=\"p3\"><em><span class=\"s2\">News Analysis<\/span><\/em><\/p>\n<p class=\"p3\"><span class=\"s2\">The U.S. treasury <a href=\"https:\/\/www.theepochtimes.com\/t-bond-market\">bond market<\/a> has tumbled this year. That\u2019s no surprise.<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">Between the Federal Reserve\u2019s interest rate hikes and quantitative tightening, 10-year <a href=\"https:\/\/www.theepochtimes.com\/t-treasury-yields\">treasury yields<\/a> have increased from 1.6 percent to more than 4.0 percent year to date. (Bond yields have an inverse relationship with bond prices.)<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">But this doesn\u2019t feel like a regular bond bear market. While the bond market appears calm on the surface, increasingly, there\u2019s talk of a \u201c<a href=\"https:\/\/www.theepochtimes.com\/t-liquidity\">liquidity<\/a> crisis\u201d brewing from too many forces acting in unison. In other words, a functioning market\u2014no matter which direction it\u2019s going\u2014needs both active buyers and sellers. Today\u2019s market has been whipsawing, with extremely low liquidity (meaning very, very few buyers at any price) and high volatility. And that could be bad news not just for the treasury bond market, but for other financial markets.<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">Earlier this month, Treasury Secretary Janet Yellen expressed concern that she was \u201cworried about a loss of adequate liquidity.\u201d On Oct. 20, Yellen\u2019s staff even asked the Treasury Bond Auction Committee (a consortium of investment banks that run bond auctions) if the U.S. Treasury should begin buying some less-liquid bonds to provide liquidity. That\u2019s an unusual and concerning request.<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">The ICE BofAML MOVE Index, the de facto measure of bond market volatility, is at its highest since the middle of 2009\u2014the thick of the last financial crisis. Yields on both two- and five-year bonds are at multi-decade highs. <\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">Let\u2019s quickly examine what has been happening. Liquidity has been declining ever since the Fed began raising interest rates. The Fed\u2019s ending quantitative easing\u2014buying of bonds\u2014and starting of quantitative tightening has worsened liquidity by taking out one of the market\u2019s biggest purchasers of bonds. More interest rate hikes are expected to come. <\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">The U.S. dollar will continue to strengthen as the Fed increases rates to battle inflation. That will cause other countries to intervene and defend their currencies. To do so, they will need to sell U.S. treasury bonds, adding more downward pressure to bond prices.<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">In a vacuum, these moves all make sense individually. But all of these selling activities converging at once could likely seize up the bond market. Remember: A sale can only occur between two willing parties. It\u2019s unclear who will do the buying.<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">The Financial Times also points out a little-known market structure problem that has yet to be tested. <\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">\u201cPreviously, the primary dealers (i.e., big banks) kept the treasuries market liquid in a crisis by acting as market makers. But after 2008, a string of regulatory reforms made it expensive to play this role,\u201d the financial paper noted in an Oct. 20 report. \u201cAs a result, primary dealers\u2019 transactions are now just 2 percent of the market, down from 14 percent in 2008.\u201d<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">In a note to clients, Bank of America analysts said that bond market liquidity is \u201cfragile and vulnerable to shock.\u201d <\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">There are a lot of risks facing the markets today. Persistent inflation, continued interest rate hikes, the U.S. and global economy, geopolitical challenges in Europe (Russia\u2013Ukraine) and East Asia (China), and their effects on businesses, employment, and, ultimately, the financial markets. <\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">The surging dollar is also threatening a traditional source of demand for U.S.-denominated assets. Sovereign wealth funds and foreign pension funds have historically been big buyers of U.S. assets, both equities and bonds. But the bear market in both of these asset classes, coupled with a very strong dollar, has dampened foreign demand. Foreign countries now need to sell U.S. dollar-denominated assets to defend their currencies. This is another under-the-radar source of liquidity drying up. <\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">At almost $24 trillion, the U.S. treasury bond market is huge. But if this market seizes up and freezes, the consequences could be wide-ranging and hard to prepare for.<\/span><\/p>\n<p><i>Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.<\/i><\/p>\n<div class=\"author_wrapper\">\n<div class=\"one_author_block round\">\n<div class=\"top_row\">\n\t\t\t\t\t<a href=\"https:\/\/www.theepochtimes.com\/author-fan-yu\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/10\/Opinion_noheadshot.jpg\" alt=\"Fan Yu\" \/><\/a><\/p>\n<p>Follow<\/p>\n<\/div>\n<p>Fan Yu is an expert in finance and economics and has contributed analyses on China&#8217;s economy since 2015.<\/p>\n<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>News AnalysisThe U.S. treasury bond market has tumbled this year. That\u2019s no surprise. Between the Federal Reserve\u2019s interest rate hikes and quantitative tightening, 10-year treasury yields have increased from 1.6<\/p>\n","protected":false},"author":1,"featured_media":1717531,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[547],"tags":[],"class_list":["post-1717528","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-bongino-report"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1717528","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1717528"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1717528\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1717531"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1717528"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1717528"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1717528"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}