The world’s deepest and most liquid fixed-income market is in big, big trouble.

 For months, traders, academics, and other analysts have fretted that the $23.7 trillion Treasurys market might be the source of the next financial crisis. 

Then last week, U.S. Treasury Secretary Janet Yellen acknowledged concerns about a potential breakdown in the trading of government debt and expressed worry about “a loss of adequate liquidity in the market.” 

Now, strategists at BofA Securities have identified a list of reasons why U.S. government bonds are exposed to the risk of “large scale forced selling or an external surprise” at a time when the bond market is in need of a reliable group of big buyers.

“We believe the UST market is fragile and potentially one shock away from functioning challenges” arising from either “large scale forced selling or an external surprise,” said BofA strategists Mark Cabana, Ralph Axel and Adarsh Sinha.

“A UST breakdown is not our base case, but it is a building tail risk.”

MarketWatch 20 October 2022 

https://www.marketwatch.com/story/fragile-treasury-market-is-at-risk-of-large-scale-forced-selling-or-surprise-that-leads-to-breakdown-bofa-says-11666290995

Treasury-Market Mounting illiquidity raises  

Climbing Treasury yields have recently sent mortgage rates above 7% for the first time in two decades, slashed stock valuations and slowed corporate borrowing. 

While there hasn’t been a serious breakdown in Treasury trading so far, the possibility is far from unthinkable given the tumult this year.

Many traders and portfolio managers warn that such a development would tear through other markets, potentially requiring intervention from the Federal Reserve to prevent a full-blown financial crisis. 

Matt Grossman and Sam Goldfarb WSJ 30 October 2022 

https://www.wsj.com/articles/rocky-treasury-market-trading-rattles-wall-street-11667086782