BlockBeats News, March 26 — Morgan Stanley rate strategist said that the sell-off in the U.S. Treasury market this month has characteristics of forced liquidation of two-year Treasuries — as traders abandon bets on Fed rate cuts and start pricing in rate hikes, the yield on the two-year U.S. Treasury has surged significantly.
Led by Eli Carter, Morgan Stanley strategists noted in a report on Wednesday that data from the CME Group Inc.'s interdealer trading platform BrokerTec shows that “market liquidity in U.S. Treasuries has noticeably declined, especially on the short end.” They added that longer-term bonds like the 10-year U.S. Treasury remain relatively stable.
The strategists said, “Wider bid-ask spreads generally suppress trading, but the fact that trading volume is still rebounding indicates many trades are driven by necessity rather than desire.” Since the conflict began, the yield on the two-year U.S. Treasury has risen about 50 basis points to 3.87%, but Morgan Stanley’s analysis suggests that the sell-off has been “exacerbated by position unwinding and deteriorating liquidity conditions.” (Jin10)
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