JPM: Mkt Functioning More Robust Than In Prev. Low Liquidity Episodes

{US} US TSYS: J.P.Morgan: Market Functioning More Robust Than In Previous Episodes Of Low Liquidity

J.P.Morgan note that “given ongoing geopolitical tensions and heightened volatility, it is no surprise that Treasury market liquidity has remained impaired. 10-Year market depth recovered further from Thursday’s low, though the 5-day average remained at levels consistent with the period of elevated volatility in around a series over weak Treasury auctions in March 2021. Taking a step back, aside from the extremely low levels of liquidity experienced in March-April 2020 around the onset of COVID-19 in the U.S., market depth is sitting a historically weak levels. Moreover, the Root Mean Square Error (RMSE) of our Treasury par curve, a measure of dispersion in off-the-run Treasuries, has continued to drift higher, indicating less efficient pricing in off-the-runs, particularly at the long end of the curve. Though market depth and RMSE both indicate very impaired Treasury liquidity, microstructure data indicates the deterioration is not as dire as implied by these metrics and market functioning is more robust than experienced during other periods of depressed liquidity such as March 2020.”