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Treasuries Pain Can Get Much Worse, Term Premium Dynamics Show

Treasuries Pain Can Get Much Worse, Term Premium Dynamics Show

By Garfield Reynolds, Bloomberg Markets Live reporter and strategist




Treasuries Pain Can Get Much Worse, Term Premium Dynamics Show

By Garfield Reynolds, Bloomberg Markets Live reporter and strategist

Treasuries’ recent slump owed plenty to the return of the so-called term premium as investors became more concerned about the risks of holding longer-dated debt. Even as US bonds get some help from geopolitical uncertainty, there’s plenty of scope for yields to march considerably higher on the same dynamics that helped drive September’s spike.
For one thing there’s little chance that the supply outlook is going to improve noticeably, no matter how the Middle East conflict and the US House speaker situation are resolved. For another, an examination of the relative yields for Australian and US debt signals there’s potential that US term premiums have further to go to.

Australia’s 10-year term premium has tended to align closely with the US gauge, but it’s been going through a relatively rare period since the pandemic with the two diverging. At first, it was the US term premium that swelled, perhaps representing the impact of extreme QE or lingering liquidity concerns after Treasuries froze as the pandemic broke out. That script flipped from early 2022 as the Fed started what would prove to be a far more aggressive hiking cycle than the RBA.

Still, as inflation slows in both economies and traders anticipate and end to rate hikes, that term premium gap closed dramatically even as September’s selloff drove steep losses for both Treasuries and Aussie bonds. Term premiums are tough enough to measure, let alone predict, but there’s a case to be made that one potential guide for the way for this to develop would be for the US term premium to close much of the remaining spread to Australia, which stood at about 60bps at the end of last month.

Tyler Durden Tue, 10/17/2023 - 07:45

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How Has Treasury Market Liquidity Evolved in 2023?

In a 2022 post, we showed how liquidity conditions in the U.S. Treasury securities market had worsened as supply disruptions, high inflation, and geopolitical…



In a 2022 post, we showed how liquidity conditions in the U.S. Treasury securities market had worsened as supply disruptions, high inflation, and geopolitical conflict increased uncertainty about the expected path of interest rates. In this post, we revisit some commonly used metrics to assess how market liquidity has evolved since. We find that liquidity worsened abruptly In March 2023 after the failures of Silicon Valley Bank and Signature Bank, but then quickly improved to levels close to those of the preceding year. As in 2022, liquidity in 2023 continues to closely track the level that would be expected by the path of interest rate volatility.

Importance of Treasury Market Liquidity

The U.S. Treasury securities market is the largest and most liquid government securities market in the world, with more than $25 trillion in marketable debt outstanding (as of August 31, 2023). The securities are used by the Treasury Department to finance the U.S. government, by countless financial institutions to manage interest rate risk and price other financial instruments, and by the Federal Reserve in implementing monetary policy. Having a liquid market is important for all of these purposes and thus of concern to market participants and policymakers alike.

Measuring Liquidity

Liquidity often refers to the cost of quickly converting an asset into cash (or vice versa) and is measured in various ways. We look at three commonly used measures, estimated using high-frequency data from the interdealer market: the bid-ask spread, order book depth, and price impact. The measures are estimated for the most recently auctioned (on-the-run) two-, five-, and ten-year notes (the three most actively traded Treasury securities, as shown in this Liberty Street Economics post), and are calculated for New York trading hours (defined as 7 a.m. to 5 p.m.).

Market Liquidity Worsened in March 2023

The bid-ask spread—the difference between the lowest ask price and the highest bid price for a security—is one of the most popular liquidity measures. As shown in the chart below, bid-ask spreads widened abruptly after the failures of Silicon Valley Bank (March 10) and Signature Bank (March 13), suggesting reduced liquidity.  For the two-year note, spreads exceeded those observed during the COVID-related disruptions of March 2020 (examined in this Liberty Street Economics post). Spreads then narrowed over the subsequent month or so to levels close to those of the preceding year but remained somewhat elevated for the two-year note.

Bid-Ask Spreads Widened in March 2023

Source: Author’s calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of average daily bid-ask spreads for the on-the-run two-, five-, and ten-year notes in the interdealer market from September 1, 2019 to September 30, 2023. Spreads are measured in 32nds of a point, where a point equals one percent of par.

The next chart plots order book depth, measured as the average quantity of securities available for sale or purchase at the best bid and offer prices. This metric again points to relatively poor liquidity in March 2023, as the available depth declined precipitously. Depth in the five-year note was at levels commensurate with those of March 2020, whereas depth in the two-year note was appreciably lower—and depth in the ten-year note appreciably higher—than the levels of March 2020. Within about a month, depth for all three notes was back to levels similar to those of the preceding year.

Order Book Depth Plunged in March 2023

Source: Author’s calculations, based on data from BrokerTec.
Notes: This chart plots five-day moving averages of average daily depth for the on-the-run two-, five-, and ten-year notes in the interdealer market from September 1, 2019 to September 30, 2023. Data are for order book depth at the inside tier, averaged across the bid and offer sides. Depth is measured in millions of U.S. dollars par and plotted on a logarithmic scale.

Measures of the price impact of trades also suggest a notable deterioration of liquidity. The next chart plots the estimated price impact per $100 million in net order flow (defined as buyer-initiated trading volume less seller-initiated trading volume). A higher price impact suggests reduced liquidity. Price impact for the two-year note rose sharply in March 2023 to a level about twice as high as at its March 2020 peak, and then within a month or so returned to levels comparable to those of the preceding year.  Price impact for the five-and ten-year notes rose more modestly in March.

Price Impact Rose in March 2023

Source: Author’s calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of slope coefficients from daily regressions of one-minute price changes on one-minute net order flow (buyer-initiated trading volume less seller-initiated trading volume) for the on-the-run two-, five-, and ten-year notes in the interdealer market from September 1, 2019 to September 30, 2023. Price impact is measured in 32nds of a point per $100 million, where a point equals one percent of par.

Volatility Spiked in March 2023

The failures of Silicon Valley Bank and Signature Bank increased uncertainty about the economic outlook and expected path of interest rates. Interest rate volatility increased sharply as a result, as shown in the next chart, with two-year note volatility in particular reaching levels more than twice as high as in March 2020. Volatility causes market makers to widen their bid-ask spreads and post less depth at any given price to manage the increased risk of taking on positions, producing a negative relationship between volatility and liquidity. The sharp rise in volatility and its subsequent decline hence help explain the observed patterns in the liquidity measures.

Price Volatility Spiked in March 2023

Source: Author’s calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of price volatility for the on-the-run two-, five-, and ten-year notes in the interdealer market from September 1, 2019 to September 30, 2023. Price volatility is calculated for each day by summing squared one-minute returns (log changes in midpoint prices) from 7 a.m. to 5 p.m., annualizing by multiplying by 252, and then taking the square root. It is reported in percent.

Liquidity Continues to Track Volatility

As in “How Liquid Has the Treasury Market Been in 2022?,” we assess whether liquidity has been unusual given the level of volatility by examining scatter plots of price impact against volatility. The chart below provides such a plot for the five-year note, showing that the 2023 observations (in gray) fall in line with the historical relationship. That is, the association between liquidity and volatility in 2023 has been consistent with the past association between these two variables. This is true for the ten-year note as well, whereas for the two-year note the evidence points to somewhat higher-than-expected price impact given the volatility (as also occurred in fall 2008, March 2020, and 2022).

Liquidity in Line with Historical Relationship with Volatility

Source: Author’s calculations, based on data from BrokerTec.
Notes: This chart plots price impact against price volatility by week for the on-the-run five-year note from January 1, 2005, to September 30, 2023. The weekly measures for both series are averages of the daily measures plotted in the preceding two charts. Fall 2008 points are for September 21, 2008–January 3, 2009, March 2020 points are for March 1, 2020–March 28, 2020, 2022 points are for January 1, 2022–December 31, 2022, and 2023 points are for January 1, 2023–September 30, 2023.

The preceding analysis is based on realized price volatility—that is, on how much prices are actually changing. We repeated the analysis with implied (or expected) interest rate volatility, as measured by the ICE BofAML MOVE Index, and found similar results for 2023. That is, liquidity for the five- and ten-year notes is in line with the historical relationship between liquidity and expected volatility, whereas liquidity is somewhat worse for the two-year note.

Continued Vigilance

While Treasury market liquidity has not been unusually poor given the level of interest rate volatility, continued vigilance by policymakers and market participants is appropriate. The market’s capacity to smoothly handle large trading flows has been of concern since March 2020, as discussed in this Brookings paper. Moreover, new empirical work shows how constraints on intermediation capacity can exacerbate illiquidity. Careful monitoring of Treasury market liquidity, and continued efforts to enhance the market’s resilience, are warranted.

Photo: portrait of Michael Fleming

Michael J. Fleming is the head of Capital Markets Studies in the Federal Reserve Bank of New York’s Research and Statistics Group. 

How to cite this post:
Michael Fleming, “How Has Treasury Market Liquidity Evolved in 2023?,” Federal Reserve Bank of New York Liberty Street Economics, October 17, 2023,

The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

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New York Supreme Court Upholds Ban On COVID Vaccine Mandate For Health Workers

New York Supreme Court Upholds Ban On COVID Vaccine Mandate For Health Workers

Authored by Benjamin Kew via The Epoch Times (emphasis ours),




New York Supreme Court Upholds Ban On COVID Vaccine Mandate For Health Workers

Authored by Benjamin Kew via The Epoch Times (emphasis ours),

New York's Supreme Court has upheld its previous ruling invalidating the COVID-19 vaccine mandate for health care workers, a decision that will have ramifications on the power of the state's executive.

A health care worker prepares a dose Pfizer/BioNTEch COVID-19 vaccine at The Michener Institute in Toronto on Dec. 14, 2020. (Carlos Osorio/POOL/AFP via Getty Images)

The ruling came from the Supreme Court's Appellate Division, Fourth Department, which dismissed the state's appeal to have the mandate reinstated.

"4th Dept dismissed state’s appeal as moot, and declined to vacate lower court win," attorney Sujata Gibson wrote on X, formerly known as Twitter.

"The mandate is over and declared unconstitutional," she continued. "[Thank you] [Children's Health Defense], [Robert F. Kennedy Jr.], and [Medical Professionals For Informed Consent], and everyone who helped in this fight.

"Doesn’t make up for the harm [New York] Inflicted, but will help protect us from more."

The health care worker vaccine mandate was first implemented in September 2021, resulting in the departure or termination of about 34,000 medical professionals from their positions.

That mandate was originally struck down by the state's Supreme Court in January, although the state's executive branch chose to appeal the decision.

In his opinion in Medical Professionals for Informed Consent vs. Bassett, Justice Gerard Neri wrote that the state's Department of Health was "clearly prohibited from mandating any vaccination outside of those specifically authorized by the legislature" and that it had "blatantly violated the boundaries of its authority as set forth by the legislature.”

Justice Neri added that the mandate was “arbitrary and capricious” given that the COVID-19 vaccines failed to prevent transmission of the virus, meaning the policy had no rational basis.

New York Gov. Kathy Hochul, a Democrat, had previously explained her opposition to rehiring health care workers who lost their jobs as a result of the vaccine, saying that this was "not the right answer."

“I think everybody who goes into a health care facility or a nursing home should have the assurance and their family member should know that we have taken all steps to protect the public health," she said at the time. "And that includes making sure those who come in contact with them at their time of most vulnerability, when they are sick or elderly, will not pass on the virus."

In April, the state agreed to unilaterally drop the mandate of its own accord, although it still contested the decision for the sake of maintaining executive authority.

"Due to the changing landscape of the COVID-19 pandemic and evolving vaccine recommendations, the New York State Department of Health has begun the process of repealing the COVID-19 vaccine requirement for workers at regulated health care facilities," the state health department stated.

Last October, the New York Supreme Court also struck down a mandate enforced specifically by New York City on all public employees, with Justice Ralph Porzio arguing there was no evidence to "support the rationality of keeping a vaccination mandate for public employees, while vacating the mandate for private sector employees or creating a carveout for certain professions, like athletes, artists, and performers."

In January 2022, the U.S. Supreme Court similarly blocked an attempt by President Joe Biden to enforce a mandate on large private companies that their employees either get the vaccine or face regular testing. However, it did allow the mandate to continue in medical facilities that took funding from Medicare and Medicaid.

"Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly,” the court wrote in its unsigned opinion. "Requiring the vaccination of 84 million Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category."

Margaret Florini, a spokesperson for Medical Professionals for Informed Consent, told The Defender that the latest decision was a "historic" win that would help prevent such abuses of power in the future.

"I think we will see many new lawsuits come about because of this historic win," Ms. Florini said. "There is still plenty of work to be done. We lost so much, not just money but relationships, marriages, friends, and homes. We cannot forget what was done to us, and we must continue to shed light on it and make impactful changes that will truly prevent this from happening again."

Tyler Durden Mon, 10/16/2023 - 21:15

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Memory in action: what the UK’s official COVID commemoration should look like

Memorialising a pandemic that is still underway is a challenge. Official commemoration needs to be about remembrance and preparedness.




Whether an actual bereavement or a loss of experience, everyone has lost something to COVID. From early on in the pandemic, grassroots memorials sought to acknowledge this collective experience, including the national COVID memorial wall in London and the annual national day of reflection organised by the Marie Curie charity.

In September 2023, the UK Commission on COVID Commemoration released its final report on how a more official reckoning with the pandemic’s legacy should be shaped. It outlines ten recommendations.

The pandemic has affected people in vastly different ways. How governments, institutions and the wider public have responded has varied enormously, too. It is also still ongoing, which complicates things further.

New variants of the virus are on the rise. And nearly two million people in the UK alone continue to suffer with long COVID.

As immunologist Sheena Cruickshank put it recently, “it may feel like we should all be done with COVID-19, but sadly COVID-19 is not done with us”.

My research into memorial culture and modernism shows how the lack of a clear or coherent narrative for an event like a pandemic makes commemorating it that much harder. The official and cultural memory of the 1918 flu pandemic was subsumed into that of the first world war – and it remained largely unremembered, until COVID brought it back to public attention.

Nurses began erecting memorials early on in the first world war. Wellcome Collection Images, CC BY-NC-ND

Remembrance and preparedness

From October to December 2022, the UK Commission on Covid Commemoration held a six-week period of public consultation. It conducted surveys, garnering 5,000 responses. It also met with affected groups, including bereaved families and long-COVID sufferers, as well as groups that are sceptical about the illness and lockdown strategies.

The report is, to my mind, admirably well considered, sensitive to the difficulties of the task. It firmly establishes why memorialising all deaths that have occurred during the pandemic – COVID-related or otherwise – is necessary. This chimes with previous research that has found that COVID-related grief is particularly difficult and that public commemoration is necessary for social cohesion.

The 11 members of the commission suggest a range of commemorations, which will now be considered for implementation by the British government. These include an annual day of reflection on the first Sunday in March, a new symbol to represent the pandemic, the establishment of a commemoration trust to organise and promote these initiatives, along with a commemoration website and an online book of remembrance.

The commissioners suggest creating ten green spaces across the country, each boasting a sculpture created by local artists. They recommend preserving those grassroots initiatives already in place, including the national COVID memorial wall.

Finally, they propose various educational initiatives. These include teaching the history of the pandemic in schools and college and collating oral histories from a wide range of groups, to, as the report puts it, “serve as a historical record of this period of our time and as an educational tool for future generations”. A postdoctoral fellowship programme is suggested, too, to enable future researchers to work with policy makers on national preparedness for natural hazards.

Most of these recommendations are fairly standard commemorative gestures. The decision to create disparate pockets of remembrance across the UK rather than one large-scale memorial is expected, as there is no consensus or agreed-upon version of the pandemic.

The choice of green spaces is usefully open-ended in terms of meaning. The memorial sculptures destined for each will, doubtless, be similarly open-ended, in keeping with the minimalist, abstract and predominantly secular tendencies in modern contemporary memorials in the UK.

The report also proposes council funding for local commemorative spaces in existing parks or green spaces, not unlike the many community-led first world war memorials.

The COVID symbol the commission suggests is a zinnia flower. Associated with remembrance, this floral design has similarities to the poppy which has long symbolised the first world war.

Large-scale commemorative gestures have already been seen in other nations. Most notably, Joe Biden’s first act as US president was, during his inaugural address, to lead a moment of silence to remember the then 400,000 Americans lost to the pandemic.

By contrast, the UK public has felt left down by its government’s response. The news, that former prime minister Boris Johnson reportedly said, in autumn 2020, that he would rather see “bodies pile high” than impose a third lockdown on the UK, has left a bitter taste.

Johnson’s subsequent clandestine evening trip, in April 2021, to the COVID memorial wall, as well as public scandals such as Partygate, have further angered the public. Bereaved family groups such as COVID-19 Bereaved Families for Justice are understandably anxious to see that their loved ones are remembered officially as names and not as numbers.

The commission is eager to distinguish itself from the contentious COVID-19 Inquiry. This report is a useful corrective to the inadequacies of the British government in commemorating the pandemic to date.

Some may wonder if it is too early to commemorate a pandemic that isn’t yet over. After 1914, nurses began to create memorials as soon as the first deaths happened. The British government established the Imperial War Museum in 1917, while the war was still ongoing. I have shown how necessary these commemorative gestures were. They ensured that the dead were not forgotten.

Whether the government will now do is yet to be seen. In its insistence both on remembrance and on preparedness – for the next pandemic that, experts agree, will happen – this report is a good first step.

Alice Kelly received a British Academy Rising Star Engagement Award from 2017-19 for a seminar series entitled "Cultures and Commemorations of War."

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