No comments on the current outlook
- We need to consider reforms to protect against future shocks
- Stress that emerged in Treasury markets may suggest need for standing repo or other changes
- Overall result showed system was resilient, proved the value of things like central clearing
- Highlights problems in money market funds
- Full text
There's nothing here on the bond market and Williams still hasn't spoken.
Something has to be done about the dysfunction of the Treasury market but judging from these comments it sounds like the Fed is going to say "it was a one-in-a-million event" and do nothing.
While the scale and speed of flows associated with the COVID shock are likely pretty far out in the tail of the probability distribution, the crisis highlighted vulnerabilities in the critically important Treasury market that warrant careful analysis. A number of possible reforms have been suggested to strengthen the resilience of the Treasury market. For instance, further improvements in data collection and availability have been recommended to enhance transparency related to market participants, such as broker-dealers and hedge funds. Some have suggested that the Federal Reserve could provide standing facilities to backstop repos in stress conditions, possibly creating a domestic standing facility or converting the temporary Foreign and International Monetary Authorities (FIMA) Repo Facility to a standing facility.9Other possible avenues to explore include the potential for wider access to platforms that promote forms of "all to all" trading less dependent on dealers and, relatedly, greater use of central clearing in Treasury cash markets.10These measures involve complex tradeoffs and merit thoughtful analysis in advancing the important goal of ensuring Treasury market resilience.
Had the Fed not started buying $300 billion per day in bonds, it would have turned out differently. If your financial system requires that kind of intervention, then what kind of system do you have?
