US Treasury market conditions and global market reactions to US monetary policy

Magdalena Grothe, Ana-Simona Manu and Peter McQuade

Economic Bulletin Boxes, 2024, vol. 8

Abstract: The US Treasury securities market is the largest and most liquid in the world. Recently, however, its liquidity has declined owing to a combination of factors, including monetary policy tightening and elevated uncertainty about inflation and growth. At the same time, leveraged funds have built up unusually large net short positions in the US Treasury futures market. This box provides empirical evidence that the impact of a US monetary policy shock on domestic and global bond markets may vary depending on conditions in the US Treasury market. Specifically, the results suggest that the effect of a US monetary policy shock might be stronger when market liquidity is low or when net short positions of leveraged funds are large. JEL Classification: E5, F3, G1

Keywords: liquidity; spillovers; United States (search for similar items in EconPapers)
Date: 2024-01
Note: 1601201
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