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Preventing the $25 trillion U.S. Treasury market from seizing up in a future crisis, as it did at the onset of the COVID-19 pandemic, could mean having the Federal Reserve on standby for unlimited bond purchases when needed, a new analysis published Friday suggests. "US Treasuries are expected to provide excellent safe-haven services in a 'dash for cash' because of the anticipated depth and liquidity of the market in which they are traded, even during a crisis when many large investors are simultaneously liquidating their Treasuries," Stanford University business school professor Darrell Duffie wrote in a paper presented at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming. But that didn't happen in March 2020, in large part because dealers simply did not have enough room on their balance sheets to handle the deluge of Treasury sales from investors panicked by the unknowns of a global pandemic.
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