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MNI: US Treasury Liquidity Strains Could Be Costly -Fed Report

(MNI) WASHINGTON

Overall liquidity conditions are reasonable given the heightened volatility, semiannual financial stability report says.

The Federal Reserve said Friday historically low quote volumes in the Treasury market in recent months could mean trading costs are at risk of rising sharply during volatile periods, though the market continues to function smoothly overall.

Bid-ask spreads for 2-year and 10-year Treasuries have moved higher since spring, while heightened volatility caused by the uncertain economic outlook is translating into lower liquidity, the report notes.

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The Federal Reserve said Friday historically low quote volumes in the Treasury market in recent months could mean trading costs are at risk of rising sharply during volatile periods, though the market continues to function smoothly overall.

Bid-ask spreads for 2-year and 10-year Treasuries have moved higher since spring, while heightened volatility caused by the uncertain economic outlook is translating into lower liquidity, the report notes.

Keep reading...Show less