Tags: Treasurys | risk | liquid | market

FT: October's Rollercoaster Ride for Treasurys Signals Risk

By    |   Wednesday, 19 November 2014 02:27 PM

In times of financial market turmoil, Treasurys often act as a ballast, with investors snapping them up as a safe haven.

But on Oct. 15, Treasury yields oscillated so violently as to raise concern among financial experts. That was the day that the stock market hit a nadir, with the S&P 500 dropping 10 percent from its Sept. 19 record high.

As for Treasurys, the 10-year note plunged to 1.86 percent during the day Oct. 15 from 2.19 percent Oct. 14, before rebounding to settle at 2.13 percent.

"While that may not seem like much, analysts say the move was 7 standard deviations away from its intraday norm, meaning it might be expected to occur once every 1.6 billion years," write Tracy Alloway and Michael MacKenzie of the Financial Times.

Some experts are concerned that stricter regulation on banks since the financial crisis has reduced Treasury market liquidity, increasing the market's vulnerability to extreme moves. And there are similar concerns about electronic trading.

"When people use computers to provide prices across markets, it [liquidity] can be withdrawn in a heartbeat, Georgetown University economist James Angel tells the Times.

"How much market liquidity really exists under this type of market structure and what changes should be made are the questions for regulators."

Some say the surge in volatility could affect the Federal Reserve's timetable in raising interest rates.

"The fragility of these risk markets have been revealed to the Fed, and that alone would make them more cautious about their hiking cycle," David Ader, head of U.S. government bond strategy at CRT Capital Group, tells Bloomberg.

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Finance
In times of financial market turmoil, Treasurys often act as a ballast, with investors snapping them up as a safe haven.
Treasurys, risk, liquid, market
267
2014-27-19
Wednesday, 19 November 2014 02:27 PM
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