Treasury’s Yellen worried about ‘loss of adequate liquidity’ in U.S. government bond market

‘We are worried about a loss of adequate liquidity in the market.’

— Treasury Secretary Janet Yellen

That was Treasury Secretary Janet Yellen pointing to concerns about the potential for problems related to thin trading conditions in the market for U.S. government debt in response to questions following a speech in Washington on Wednesday, according to news reports.

Yellen noted that the balance-sheet capacity of broker-dealers to participate in market making hasn’t expanded much while overall Treasury supply has increased, Bloomberg reported, noting that while Treasury supply has jumped since the end of 2019, big financial institutions have been reluctant to increase market-making activity as a result of the supplementary leverage ratio regulation, or SLR, which requires them to put capital aside against such activity.

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