Brainard Says Re­duc­tions To Bal­ance Sheet Smooth

The Bond Buyer - - Market News - — Gary E. Siegel

The Trea­sury mar­ket has func­tioned nor­mally de­spite the Fed­eral Re­serve’s bal­ance-sheet re­duc­tion, ac­cord­ing to Fed­eral Re­serve Board Gov. Lael Brainard.

“[T]he ini­ti­a­tion of pol­icy nor­mal­iza­tion and the on­go­ing re­duc­tion of the Fed­eral Re­serve’s bal­ance sheet do not ap­pear to have sparked a de­te­ri­o­ra­tion in Trea­sury mar­ket liq­uid­ity,” Brainard said at a Fed­eral Re­serve Bank of New York con­fer­ence Mon­day, ac­cord­ing to pre­pared text re­leased by the Fed. “Stan­dard met­rics such as bid-ask spreads have not ma­te­ri­ally changed for bench­mark se­cu­ri­ties since 2014. Mar­ket func­tion­ing has also been or­derly dur­ing a num­ber of re­cent events that were char­ac­ter­ized by high trad­ing vol­ume and el­e­vated price volatil­ity, such as in early Fe­bru­ary of this year.”

And while there was con­cern “that pro­pri­etary trad­ing firms had al­ready eclipsed bank deal­ers in bench­mark Trea­sury trad­ing or would come to threaten the dealer busi­ness model more broadly, nei­ther has oc­curred,” Brainard noted.

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