US Government Bond Liquidity during the COVID-19 Pandemic

Abstract

US government bond illiquidity measures began rising during the last week of February 2020. Several of them surpassed the Great Recession levels during the second week of March. Illiquidity spikes do not seem to match with proposed explanatory events. The illiquidity measures of the most actively traded securities declined after the first Federal Reserve intervention, but normalizing the liquidity of other bonds required the second intervention. Liquidity measures were mostly back to normal by late April. The inflation-linked bonds illiquidity spike was milder but more persistent and less correlated with Federal Reserve actions compared to nominal Treasuries.

Keywords: liquidity, Treasuries, inflation-linked bonds, COVID-19

JEL Classification: G12, G14, G18, G28, H12, H63, H84