Financial Associated Press, October 13 (Editor Xiaoxiang) In the latest speech delivered on Wednesday local time, U.S. Treasury Secretary Janet Yellen mentioned concerns that U.S. Treasury bond transactions may collapse due to lack of liquidity, The U.S. Treasury Department, which she leads, is currently working to shore up this key market.
“We’re concerned about the lack of sufficient liquidity in the (treasury bond) market,” Yellen said in response to questions after remarks in Washington on Wednesday.
She noted that the balance sheet capacity of market makers who trade in U.S. Treasuries has not expanded much, while the overall supply of U.S. Treasuries has climbed.
An industry statistic shows that since the end of 2019, the U.S. national debt outstanding has risen by about $7 trillion. But large financial institutions are less willing to act as market makers because of the so-called Supplemental Leverage Ratio (SLR), which requires capital to be invested in such activities as well as reserve holdings.
Yellen noted that the Fed now has a long-term repo facility that provides liquidity support to the U.S. Treasury market, which “might help.”
She also said the group of 30 had some “good ideas” on reforms that would help strengthen the market, including a possible expansion of central clearing. Founded in 1978, the 30-member group is a non-profit international organization composed of central bank governors of some countries and celebrities in the international financial field.
Yellen’s “big face change” before and after 24 hours
It is worth mentioning that, although viewed in isolation, Yellen’s overnight warning of a possible crisis in U.S. Treasuries due to lack of liquidity did not cause much criticism. But if Yellen’s latest speech on Wednesday is put together with the statement the day before, it is obvious that there is no shortage of “self-defeating”.
Zero Hedge, a well-known financial blog site, said unceremoniously that Yellen seemed to be suffering from “amnesia.” Zero Hedge put together Yellen’s remarks in two speeches about 24 hours ago, and the extent of her face change can be described at a glance:
At 16:23 Eastern Time on Tuesday, Yellen said: “I am not worried about the liquidity of the market;
At 16:38 EST on Wednesday, Yellen said: “I am worried that the national debt will lose sufficient liquidity;
As we reported yesterday, Yellen noted in an interview Tuesday in Washington on the sidelines of the annual meetings of the International Monetary Fund and the World Bank that she has yet to see signs of financial instability in U.S. financial markets.
In this regard, Zero Hedge said that as for Yellen’s speech, the answer is actually very simple – an industry measure of the liquidity situation of the US Treasury bond market, which is currently at the peak of the crisis since the new crown epidemic blockade. The most stressful state ever!
Remember, the last time Treasury liquidity was so bad, the Fed provided $1 trillion a day in overnight loans to big banks and launched a $120 billion monthly bond-buying policy to avoid a catastrophic short run on the dollar.
And this time, what can Yellen and Fed Powell do?