U.S. Treasury Markets: Steps Toward Increased Resilience
Author(s): G30 Working Group on Treasury Market Liquidity
This report analyzes the current state of the U.S. Treasury Market following a series of economic shocks that reduced its ability to efficiently function. The COVID-19 pandemic cast further doubts over the system's ability to absorb financial trauma and recover. The authors warn that if intermediation is not taken immediately, it could result in permanent damage to the Treasury, impact U.S. fiscal policy for decades, and burden tax-payers. With the root of these shocks still undetermined, there is fear that it will create more dysfunction in the market and drive investors away.
The report proposes a series of recommendations for increasing the liquidity of the Treasury market during times of stress by expanding the capacity of firms and asserting greater monetary confidence. The goal is to retain current investors and supplies, while also drawing new bank capital in the market to spark a resurgence of growth and repair the system to a post-global financial crisis state.
This report indicates that the objective of these recommendations is to improve the functioning capacity of the Treasury market in both normal times and in periods of extreme financial distress. However, the authors believe that implementation of these targets is not enough to ensure guaranteed success, they only provide a solid foundation from which to build a more secure and diverse monetary policy framework. There are several other priority areas that are not addressed with these goals. It is essential for economists, bankers, and policymakers to support the other aspects of the U.S. financial system and Federal Reserve, such as long-term sustainability of the U.S. fiscal position and an extended infrastructure.
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