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Treasury Market Liquidity and the Federal Reserve during the COVID-19 Pandemic

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Abstract
Many of the actions taken by the Federal Reserve during the COVID-19 pandemic are intended to address a deterioration of market functioning. The Federal Open Market Committee (FOMC) announced purchases of Treasury securities and agency mortgage-backed securities (MBS), in particular, “to support the smooth functioning of markets” in those securities. Last month, we showed in this post how one metric of functioning for the Treasury market, market illiquidity, jumped to unusually high levels in March amid massive uncertainty about the economic effects of the pandemic. In this post, we extend our analysis through April and zero in on early 2020 in particular to better understand how the Fed’s actions evolved in relation to day-to-day market developments.

Suggested Citation

  • Michael J. Fleming, 2020. "Treasury Market Liquidity and the Federal Reserve during the COVID-19 Pandemic," Liberty Street Economics 20200529a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:88081
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    Citations

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    Cited by:

    1. Daan Steenkamp & Henk Janse van Vuuren & Rossouw van Jaarsveld & Roy Havemann, 2022. "The bond market impact of the South African Reserve Bank bond purchase programme," Working Papers 876, Economic Research Southern Africa.
    2. Foley, Sean & Kwan, Amy & Philip, Richard & Ødegaard, Bernt Arne, 2022. "Contagious margin calls: How COVID-19 threatened global stock market liquidity," Journal of Financial Markets, Elsevier, vol. 59(PA).
    3. Mahyar Kargar & Benjamin Lester & David Lindsay & Shuo Liu & Pierre-Olivier Weill & Diego Zúñiga, 2021. "Corporate Bond Liquidity during the COVID-19 Crisis [The day coronavirus nearly broke the financial markets]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5352-5401.
    4. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    5. Onofrio Panzarino, 2023. "Investor behavior under market stress:evidence from the Italian sovereign bond market," Temi di discussione (Economic working papers) 33, Bank of Italy, Economic Research and International Relations Area.
    6. Matthias Thiemann, 2021. "La relation asymétrique des banques centrales au financement de marché : une évaluation des implications pour la stabilité financière à la lumière des évènements lés à la Covid," Post-Print hal-03622943, HAL.
    7. repec:fip:a00001:94154 is not listed on IDEAS
    8. Larry D. Wall, 2021. "So Far, So Good: Government Insurance of Financial Sector Tail Risk," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2021(13), November.
    9. Patricia C. Mosser, 2020. "Central bank responses to COVID-19," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 55(4), pages 191-201, October.
    10. Willem H Buiter, 2023. "The widespread failure of central banks to control inflation," Economic Affairs, Wiley Blackwell, vol. 43(1), pages 2-31, February.
    11. Jordan Barone & Alain P. Chaboud & Adam Copeland & Cullen Kavoussi & Frank M. Keane & Seth Searls, 2023. "The Global Dash for Cash: Why Sovereign Bond Market Functioning Varied across Jurisdictions in March 2020," Economic Policy Review, Federal Reserve Bank of New York, vol. 29(3), pages 1-29, December.
    12. Michael J. Fleming & Haoyang Liu & Rich Podjasek & Jake Schurmeier, 2022. "The Federal Reserve’s Market Functioning Purchases," Economic Policy Review, Federal Reserve Bank of New York, vol. 28(1), pages 210-241, July.
    13. Debelle, Guy, 2020. "The Reserve Bank of Australia’s policy actions and balance sheet," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 285-295.
    14. Thomas M. Eisenbach & Gregory Phelan, 2022. "Fragility of Safe Asset Markets," Staff Reports 1026, Federal Reserve Bank of New York.
    15. Egemen Eren & Philip Wooldridge, 2021. "Non-bank financial institutions and the functioning of government bond markets," BIS Papers, Bank for International Settlements, number 119.
    16. Matthias Thiemann, 2021. "La relation asymétrique des banques centrales au financement de marché : une évaluation des implications pour la stabilité financière à la lumière des évènements lés à la Covid," SciencePo Working papers Main hal-03622943, HAL.

    More about this item

    Keywords

    liquidity; Treasury markets; Federal Reserve; COVID-19; pandemic;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

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