U.S. Treasury asks major banks if it should buy back bonds

US Treasury asks major banks if it should buy back U.S. government bonds

Liquidity in the world's largest bond market has deteriorated this year partly because of rising volatility as the Federal Reserve rapidly raises interest rates to bring down inflation.

The Treasury is asking dealers about the specifics of how buybacks could work “in order to better assess the merits and limitations of implementing a buyback program.” It is further asking about the costs and benefits of funding repurchases of older debt with increased issuance of so-called on-the-run securities, which are the most liquid and current issue.

However, when it comes to longer-dated government bonds, investors have noted that a major constraint for liquidity is the result of a rule introduced by the Federal Reserve following the 2008 financial crisis which requires dealers to hold capital against Treasuries, limiting their ability to take on risk, particularly at times of high volatility.

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Reuters /  🏆 2. in US

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