Discussion Paper

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

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.

Keywords: liquidity; Treasury markets; Federal Reserve; COVID-19; pandemic;

JEL Classification: G1;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2020-05-29

Number: 20200529a