USA Stocks discussion - Part 3
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https://www.brookings.edu/articles/whats-going-on-in-the-us-treasury-market-and-why-does-it-matter/
What happened in the Treasury market in early April 2025?
The tariffs President Trump announced on April 2 were bigger and broader than expected and created massive uncertainty for the economy. Financial market volatility soared. Treasury yields fell initially amid growing concerns about a recession, but the yield on longer-term Treasury debt began to rise later that week as investors reassessed the prospects for higher inflation and weaker growth over a longer horizon.
With the escalation of tariffs and no clear signs of an off-ramp, financial asset prices became even more volatile. The rise in the 10-year Treasury yield accelerated with unusual speed from less than 4% percent on Friday, April 4, to spike to 4.5% intra-day on Tuesday, April 8, and the 30-year yield topped 5%. Market liquidity declined as intermediaries often pull back from risk-taking and raise transaction costs when volatility is high. The spread of Treasury yields-to-OIS (also known as the interest rate swap) at longer maturities, a measure of the demand for Treasury securities relative to the fixed rate on the interest rate swap, widened sharply late Monday, April 7, raising concerns that market liquidity for Treasury securities was deteriorating further. Amid the turmoil, the Treasury’s auction of 3-year Treasury notes was weaker than usual. Investors began questioning whether markets would become dysfunctional, as they were in March 2020.
But the worst fears about market functioning eased on Wednesday, April 9, when demand was strong at the Treasury’s auction of 10-year bonds and after President Trump announced a 90-day delay in tariffs for some countries, though he increased them with China. The 30-year auction also went well the next day. The Treasury yield curve, however, still remains steeper than before the tariffs were announced, and yields on 10-year and 30-year Treasury securities are up around 25-50 basis points from their recent lows on April 4.
Some investors speculated that the sharp rise in yields of longer-term Treasuries indicated that leveraged hedge funds were facing funding pressures and that resulting sales would force Treasury yields even higher. Indicators from the repo market suggest some funding pressures but not of the magnitude to explain the swap spread, though some believe they could have worsened materially if uncertainty remained high or increased further. Others speculated that some of the rise in rates came from increasing doubts about Treasury securities as the pre-eminent global safe-haven asset, consistent with the decline in the dollar. A re-pricing of Treasury debt for this reason would be very consequential, forcing the U.S. government to pay more to borrow to finance deficits and raising the costs of borrowing for businesses and households. It will take time with detailed data that the financial regulators have to disentangle how much of the rise in longer-term yields was due to fundamental revisions in the outlook for the economy and inflation, to market illiquidity because of deleveraging pressures that may have forced sales of Treasuries to raise cash, or how much could be from sales because investors repriced the safe-haven quality of Treasury securities. But available evidence suggests that the current episode so far is not a repeat of the market dysfunction in March 2020 from a cash-basis unwind by hedge funds and redemptions from bond funds.
What lessons did we learn from what happened in the Treasury market in March 2020 at the onset of COVID?
When COVID hit, it was far from clear what it would mean for the economy and for day-to-day life. In the Treasury market, market liquidity deteriorated by much more than expected; dealers and other intermediaries’ capacity to buy Treasury debt was overwhelmed by selling of Treasuries by investors who faced funding pressures or others who wanted ultra-safe cash—the “dash for cash.” Open-end bond mutual funds and hedge funds needed cash to meet margin calls or to satisfy investor redemptions. They chose to sell their most liquid securities—Treasuries. This surge in desired selling exceeded the ability or willingness of dealers to supply liquidity in the face of unprecedented risks and disruptions to normal practices, as many traders were sent to work from home. Treasury prices fell and interest rates rose sharply, especially for off-the-run securities (those issued before the most recent issue and which are still outstanding). The sharp rise in rates contrasted sharply with past episodes of high uncertainty when the flight of investors to the safe haven of Treasury securities would drive down interest rates.
Market functioning was restored only after the Federal Reserve began purchasing huge amounts of Treasury securities to provide liquidity. To put this in perspective, the Fed bought $80 million a month on long-term government debt in the third round of Quantitative Easing (QE3) in 2012. In the week of March 25, 2020, the Fed bought $360 billion in Treasuries. The Fed ultimately committed to “purchase Treasury securities and agency mortgage-backed securities purchases in the amounts needed to support smooth market functioning and the effective transmission of monetary policy to broader financial conditions.”
Fortunately, the Fed’s purchases to restore market functioning in March 2020 were aligned with its monetary policy objectives at the time—to stimulate the economy and raise inflation to its 2% target. It is possible, however, that the Fed may someday confront the need to purchase Treasury securities at a time when doing so would conflict with achieving its mandate of maximum employment and price stability. Avoiding this conflict underscores the importance of regulatory reforms to strengthen Treasury market resilience.
What fragilities in the Treasury market are concerning?
The Treasury market has changed significantly in the past couple of decades in ways that make market liquidity less resilient to big shocks. The amount of Treasury market debt has increased enormously because of large federal deficits. At the same time, intermediation has changed significantly. Traditional securities dealers have pulled back from market making after capital standards and risk management practices were strengthened after the Global Financial Crisis (GFC) in 2008. Electronic trading has increased and principal trading firms, typically with smaller capital cushions than securities dealers, now represent most of the trading in electronic, inter-dealer markets. And the investor base is more price sensitive, as private funds with leverage or redemption pressures have increased their holdings of Treasuries, and the share held by foreign official entities who are less price-sensitive has fallen. The share of Treasuries held by money market funds, mutual funds, and hedge funds has risen to more than 27%, while the share held by foreign holders has fallen from about 50% in 2015 to 30% now.
What happened in the Treasury market in early April 2025?
The tariffs President Trump announced on April 2 were bigger and broader than expected and created massive uncertainty for the economy. Financial market volatility soared. Treasury yields fell initially amid growing concerns about a recession, but the yield on longer-term Treasury debt began to rise later that week as investors reassessed the prospects for higher inflation and weaker growth over a longer horizon.
With the escalation of tariffs and no clear signs of an off-ramp, financial asset prices became even more volatile. The rise in the 10-year Treasury yield accelerated with unusual speed from less than 4% percent on Friday, April 4, to spike to 4.5% intra-day on Tuesday, April 8, and the 30-year yield topped 5%. Market liquidity declined as intermediaries often pull back from risk-taking and raise transaction costs when volatility is high. The spread of Treasury yields-to-OIS (also known as the interest rate swap) at longer maturities, a measure of the demand for Treasury securities relative to the fixed rate on the interest rate swap, widened sharply late Monday, April 7, raising concerns that market liquidity for Treasury securities was deteriorating further. Amid the turmoil, the Treasury’s auction of 3-year Treasury notes was weaker than usual. Investors began questioning whether markets would become dysfunctional, as they were in March 2020.
But the worst fears about market functioning eased on Wednesday, April 9, when demand was strong at the Treasury’s auction of 10-year bonds and after President Trump announced a 90-day delay in tariffs for some countries, though he increased them with China. The 30-year auction also went well the next day. The Treasury yield curve, however, still remains steeper than before the tariffs were announced, and yields on 10-year and 30-year Treasury securities are up around 25-50 basis points from their recent lows on April 4.
Some investors speculated that the sharp rise in yields of longer-term Treasuries indicated that leveraged hedge funds were facing funding pressures and that resulting sales would force Treasury yields even higher. Indicators from the repo market suggest some funding pressures but not of the magnitude to explain the swap spread, though some believe they could have worsened materially if uncertainty remained high or increased further. Others speculated that some of the rise in rates came from increasing doubts about Treasury securities as the pre-eminent global safe-haven asset, consistent with the decline in the dollar. A re-pricing of Treasury debt for this reason would be very consequential, forcing the U.S. government to pay more to borrow to finance deficits and raising the costs of borrowing for businesses and households. It will take time with detailed data that the financial regulators have to disentangle how much of the rise in longer-term yields was due to fundamental revisions in the outlook for the economy and inflation, to market illiquidity because of deleveraging pressures that may have forced sales of Treasuries to raise cash, or how much could be from sales because investors repriced the safe-haven quality of Treasury securities. But available evidence suggests that the current episode so far is not a repeat of the market dysfunction in March 2020 from a cash-basis unwind by hedge funds and redemptions from bond funds.
What lessons did we learn from what happened in the Treasury market in March 2020 at the onset of COVID?
When COVID hit, it was far from clear what it would mean for the economy and for day-to-day life. In the Treasury market, market liquidity deteriorated by much more than expected; dealers and other intermediaries’ capacity to buy Treasury debt was overwhelmed by selling of Treasuries by investors who faced funding pressures or others who wanted ultra-safe cash—the “dash for cash.” Open-end bond mutual funds and hedge funds needed cash to meet margin calls or to satisfy investor redemptions. They chose to sell their most liquid securities—Treasuries. This surge in desired selling exceeded the ability or willingness of dealers to supply liquidity in the face of unprecedented risks and disruptions to normal practices, as many traders were sent to work from home. Treasury prices fell and interest rates rose sharply, especially for off-the-run securities (those issued before the most recent issue and which are still outstanding). The sharp rise in rates contrasted sharply with past episodes of high uncertainty when the flight of investors to the safe haven of Treasury securities would drive down interest rates.
Market functioning was restored only after the Federal Reserve began purchasing huge amounts of Treasury securities to provide liquidity. To put this in perspective, the Fed bought $80 million a month on long-term government debt in the third round of Quantitative Easing (QE3) in 2012. In the week of March 25, 2020, the Fed bought $360 billion in Treasuries. The Fed ultimately committed to “purchase Treasury securities and agency mortgage-backed securities purchases in the amounts needed to support smooth market functioning and the effective transmission of monetary policy to broader financial conditions.”
Fortunately, the Fed’s purchases to restore market functioning in March 2020 were aligned with its monetary policy objectives at the time—to stimulate the economy and raise inflation to its 2% target. It is possible, however, that the Fed may someday confront the need to purchase Treasury securities at a time when doing so would conflict with achieving its mandate of maximum employment and price stability. Avoiding this conflict underscores the importance of regulatory reforms to strengthen Treasury market resilience.
What fragilities in the Treasury market are concerning?
The Treasury market has changed significantly in the past couple of decades in ways that make market liquidity less resilient to big shocks. The amount of Treasury market debt has increased enormously because of large federal deficits. At the same time, intermediation has changed significantly. Traditional securities dealers have pulled back from market making after capital standards and risk management practices were strengthened after the Global Financial Crisis (GFC) in 2008. Electronic trading has increased and principal trading firms, typically with smaller capital cushions than securities dealers, now represent most of the trading in electronic, inter-dealer markets. And the investor base is more price sensitive, as private funds with leverage or redemption pressures have increased their holdings of Treasuries, and the share held by foreign official entities who are less price-sensitive has fallen. The share of Treasuries held by money market funds, mutual funds, and hedge funds has risen to more than 27%, while the share held by foreign holders has fallen from about 50% in 2015 to 30% now.
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Natgas and crude oil are rebounding from the lows.
Massive buy-the-dip volume in XLE during the crash last week.... now the price is rising up from this dip.
US bond MOVE is dropping sharply as well!
As if saying ... this tariff war is over!!
Massive buy-the-dip volume in XLE during the crash last week.... now the price is rising up from this dip.
US bond MOVE is dropping sharply as well!
As if saying ... this tariff war is over!!
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New sanctions on Iran.
https://www.cnbc.com/2025/04/17/oil...e-as-us-adds-sanctions-on-iran-opec-cuts.html
Docking fees for Chinese-built vessels.
https://www.cnbc.com/2025/04/17/tru...ees-on-chinese-ships-docking-at-us-ports.html
Jirachi
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I remembered mentioning this.
Sounds like not as bad as expected.
DevilPlate
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So far Japan playing delay tactics……gona drag on and seems like nobody wants to be the first pig to get slaughtered 
Only IF bond market collapse then Warlord will cave in and surrender?
Only IF bond market collapse then Warlord will cave in and surrender?
At first, I thought this is bullish,... until I realised about another big elephant in the room: Private Equity.
They are stuck... including left-leaning US universities that just got cut in Federal funding. Their endowments are stuffed with private equity that are not marked-to-market.
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apple459721
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DevilPlate
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Sinking sampan
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This guy is playing the apprentice on a real world stage. Siao. At least the show is scripted. This is just a whole mess for the real world.
someone should say "you're fired" to him. Haha.
someone should say "you're fired" to him. Haha.
https://www.nbcnews.com/politics/ju...geting-prominent-law-firm-shocking-rcna200961
https://www.channelnewsasia.com/wor...owell-interest-rates-playing-politics-5073891
Nothing but bad news every week, US is sinking fast under Trump, when is the supreme court or congress going to act?
https://www.channelnewsasia.com/wor...owell-interest-rates-playing-politics-5073891
Nothing but bad news every week, US is sinking fast under Trump, when is the supreme court or congress going to act?
Its crazy how Elon Musk was able to install a new IRS commissioner without Bessent's approval.
soulblader_89
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Is the whole US sinking?
No, a significant number of market players are betting that this is like 2018-like short-term correction, i.e. Trump will drop the tariffs to a lower number after the negotiations ended. The US society cannot withstand such high tariffs since reindustrialisation has barely started. The optimistic people will be betting that the future presidents (8 or 16 years later) may not even follow through completely Trump's policies (only partial reindustrialisation).
Entertainment time:
So the market may make a bounce up in the coming weeks, but this will be used by slow big money to unload more of their holdings. Slow big money have a lot of illiquid PE holdings that they can't liquidate, so they must resort to selling more liquid publicly-traded equities.
Which brings us finally to this view: we are at the start of a major bear market.... either already started, or going to start soon. Trump has significantly damaged foreign investor confidence in USA. Foreign SWFs may also need to sell their US equity holdings to get cash to fund domestic priorities in response to Trump's 10% minimum import tariffs.
In conclusion, the coming buying demand is likely to meet significant selling pressure. If Powell does nothing, financial system leverage will not increase much, then buying demand will dissipate easily.
By the time he starts cutting rates again, it will likely be too late to stop the downwards worsening economic momentum.
No bear markets are the same. If you think this bear market will be short and shallow such that one can DCA all the way till it regains ATH, then make sure you have a nice secure stable job in case it isn't.
We are giving ourselves cancer to deal with the long hair instead of just getting a haircut.
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elvintay07
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My bear friends claimed it is over for US. They said imagine US don’t have any rare earth, US likely become North Korea. They think time to slowly buy into STI which will huat big big.
I got nothing to say since I am vested in US. Can only endure and hope I am eventually right. If wrong then hong kan liao
I got nothing to say since I am vested in US. Can only endure and hope I am eventually right. If wrong then hong kan liao
DevilPlate
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elvintay07
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In life wrong many times, millionaire also bankrupt. We need to be mostly correct
DevilPlate
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Unless u go sell the big big Landed and do many wrong investment subsequently.
Else right now u have a jail free card on hand.
elvintay07
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No la. My target is at least $200m before I die lei. I need to be like Peter Lynch. Peter Lim also can
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