Crumbs

• Lyn Alden thinks that the Fed will not resort to yield curve control. Yet.
• FT Article explaining that liquidity of the Treasury market is not as great as people would like.

  Banks often blame bouts of illiquidity on post-crisis regulations constraining their ability to make markets, and the influx of high-speed, algorithmic traders in Treasuries. These firms might keep trading cheaper and more efficient in normal times, but they tend to pull back when turmoil erupts, some asset managers say. “They make up such a large share of the order book depth that when it is decimated as it was, there is no other conclusion to draw other than the fact that they either pulled back significantly or widened their bid/offers,” said Gladchun at Loomis Sayles. The turbulence has heightened concerns about what may happen if regulators do not extend a Covid-triggered exception for Treasuries and cash reserves when it comes to calculating how much extra capital banks need to hold. A political battle recently escalated over the concessions, which were extended in part to help banks absorb selling pressures and are set to expire this month. Some experts say that further measures may also be needed to shore up the market that acts as a benchmark for trillions of dollars in assets. “For the world’s so-called risk-free asset — the asset which is supposed to be the one that protects us every single time — the fact that this is happening should be horrifying,” said Yesha Yadav, a professor focused on Treasury market reform at Vanderbilt Law School. “Regulators have a lot to do here.”

Wrap

Service PMI had a big miss. Fairly heavy falls in FAANG stocks:

• DX up, 90.9 now,
• Almost all govt. bonds have higher yields, typically half a dozen bps.,
• Commodities mixed: oil up, because of OPEC meeting tomorrow, everything else down, incl. precious metals,

Tweets

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— Newsquawk (@Newsquawk) March 3, 2021