According to an index that measures Treasury market volatility, bond volatility is at a level not seen since the peak of the COVID market crisis in March 2020. This is a worrisome sign that the Treasuries markets, which are considered a safe haven for investors, are not functioning as they should. For context, the biggest one-day move for the benchmark 10-year Treasury in 2021 was 0.16. This year, there have been seven days with larger moves. Liquidity is evaporating, which has caused the soaring volatility. A Bloomberg index is currently showing that liquidity in the Treasury markets is worse now than in the early days of the pandemic, while implied volatility, measured by the ICE BofA MOVE Index is near its highest since 2009. This is coming at a time when Bloomberg News reports that the largest buyers of Treasuries, including Japanese pensions, life insurers, foreign governments, and US commercial banks, are pulling back at the same time. Even Treasury Secretary Janet Yellen has expressed concern about a potential breakdown in trading, saying that her department is “worried about a loss of adequate liquidity” in the US government securities market.
Finsum: A lack of liquidity and a pullback in large-scale treasury purchases has triggered volatility not seen since March 2020.