The world’s most important financial market is not fit for purpose

to trade Treasuries. Big banks hold them for liquidity management, pension funds own them for long-term yields, hedge funds use them to bet on the economy, individuals’ savings are stored in them and central banks use them to manage foreign-exchange reserves. The market for Treasuries, most of the time, is deep and liquid. Some $640bn of government bonds change hands each day, at prices that become the benchmark risk-free rate by which all financial instruments are valued and lending rates set. So why do they sometimes not change hands? Several times in the recent past the market has broken down. In 2014 a “flash rally” led to wild swings in prices, for no clear reason. In 2019 rates spiked in the “repo” market, in which Treasuries can be swapped for cash overnight. In March 2020 extreme illiquidity led yields to spike, even though in times of panic they usually fall as investors rush to safe assets. Now issues are cropping up again: measures of volatility have jumped to levels last seen in 2020 and bid-ask spreads are widening.