The US Treasury market is vulnerable to stress

Significance

The US Treasuries securities market is the world's largest and most liquid financial market, and is relied on by market participants as a basis to price other risks. However, on several occasions in recent years, it has exhibited unusual behaviour under stress and required corrective intervention by the US Federal Reserve (Fed).

Impacts

• The rebound remains vulnerable to COVID-19 spread, and the ongoing need for supportive measures will stoke policy conflicts for some time.
• The firmer link between policy and price expectations means that miscommunication may be more disruptive than in the 2013 ‘taper tantrum’.
• The Fed tapering of bond purchases over the near term could trigger interest rate rises, testing the resilience of the Treasury market.