On this submit, we study the evolution of U.S. Treasury market liquidity over the previous 12 months, which has witnessed myriad financial and political developments. Liquidity worsened markedly one 12 months in the past as volatility elevated following the announcement of higher-than-expected tariffs. Liquidity rapidly improved when the tariff will increase had been partially rolled again after which remained pretty secure thereafter (by the tip of our pattern in February 2026), together with after the latest Supreme Courtroom resolution placing down the emergency tariffs and the following announcement of recent tariffs.
Why Treasury Market Liquidity Issues
The U.S. Treasury market is the biggest securities market on the planet, with greater than $30 trillion in marketable debt excellent as of February 28. The market is utilized by the Treasury Division to finance the U.S. authorities, by the Federal Reserve to implement financial coverage, and by monetary establishments to handle rate of interest threat and worth different securities. Liquidity is crucial to all of those makes use of and is due to this fact adopted carefully by market contributors and policymakers.
How We Measure Treasury Market Liquidity
We outline market liquidity as the price of rapidly changing an asset into money (or vice versa). As in our previous Workers Report, we have a look at three liquidity measures, estimated utilizing high-frequency information from the interdealer market: the bid-ask unfold, order e-book depth, and value influence. The measures are calculated for essentially the most lately auctioned (on-the-run) two-, five-, and ten-year notes over New York buying and selling hours (outlined as 7:30 a.m. to five p.m., Japanese time).
Volatility and Information over the Previous Yr
As a result of volatility is tightly linked to Treasury market liquidity (see this LSE submit, for instance), we first assess value volatility round necessary information occasions since April 2025. Volatility displays the uncertainty that usually emanates from financial and political developments. We measure so-called realized volatility (volatility primarily based on precise value variation) at a every day degree for a similar securities—and utilizing the identical information—employed for our liquidity measures.
The chart beneath exhibits that volatility rose sharply after the April 2, 2025 tariff announcement, peaking between April 7 and April 9. Treasury yields initially declined following the April 2 announcement (maybe attributable to flight-to-safety habits by buyers), with the ten‑12 months yield declining from about 4.2 p.c to as little as 3.9 p.c on April 4 earlier than closing the day at about 4.0 p.c (see the slide deck accompanying this Could speech by Roberto Perli, supervisor of the System Open Market Account).
Volatility Trended Down after April 2025 Spike
Notes: The chart plots five-day transferring averages of value volatility for the on-the-run two-, five-, and ten-year notes within the interdealer market from January 2, 2020 to February 27, 2026. Worth volatility is calculated for every day by summing squared one-minute returns (log adjustments in midpoint costs) from 7:30 a.m. to five p.m., annualizing by multiplying by 252, after which taking the sq. root. It’s reported in p.c. Drop traces flag the peaks within the five-day transferring common for the ten-year word, that are centered round March 11, 2020, March 14, 2023, and April 8, 2025.
At the beginning of the subsequent buying and selling week, the ten-year yield opened decrease than Friday’s shut however rose quickly, from about 3.9 p.c to 4.5 p.c, or roughly 60 foundation factors, between 8 p.m. on April 6 and midnight two days later. Some analyses counsel the unwinding of swap unfold trades contributed to the rise in yields whereas others level to foreigners’ decreased willingness to carry Treasuries. On April 9, President Trump introduced that many of the new country-specific tariffs had been being postponed for 90 days. The ten-year yield declined sharply that day, later ending the week about 20 foundation factors greater than its degree on the time of the April 2 announcement.
After April 9, volatility rapidly declined to extra regular ranges and continued trending down in subsequent months as extra tariff-related information was introduced: the implementation of the reciprocal tariffs, the Supreme Courtroom resolution placing down the tariffs, and the fast imposition of new short-term tariffs. There was a blip up in volatility in February 2026 across the releases of the employment report (February 11) and client value index (February 13) however not across the Supreme Courtroom resolution (February 20). Notice that our evaluation ends with the final buying and selling day of February 2026 and therefore doesn’t mirror results from the battle with Iran, which began the subsequent day.
Market Liquidity over the Previous Yr
The bid-ask unfold is the distinction between the bottom ask value and highest bid value for a safety, with a wider unfold suggesting worse liquidity. Bid-ask spreads, proven within the chart beneath, widened markedly after the April 2 tariff announcement, albeit a lot lower than in March 2020 and even considerably lower than throughout the March 2023 regional banking turmoil. Bid-ask spreads narrowed after the April 9 announcement that the brand new tariffs had been principally being postponed and since then have been much like ranges usually noticed in recent times.
Bid-Ask Spreads Had been Comparatively Secure after April 2025 Widening
Notes: The chart plots five-day transferring averages of common every day bid-ask spreads for the on-the-run two-, five-, and ten-year notes within the interdealer market from January 2, 2020 to February 27, 2026. Spreads are measured in 32nds of a degree, the place a degree equals one p.c of par. Drop traces flag the peaks within the five-day transferring common for the ten-year word, that are centered round March 16, 2020, March 15, 2023, and April 9, 2025.
Order e-book depth is measured as the common amount of securities posted for buy or sale at one of the best bid and provide costs. Decrease depth implies worse liquidity. This metric additionally factors to comparatively poor liquidity in April 2025, when obtainable depth declined to the bottom ranges since March 2023 (see chart beneath). Depth rapidly recovered and by late summer time 2025 was at ranges much like, if not higher than, any time because the Fed’s post-COVID tightening cycle began in March 2022. Depth continued trending greater by February 2026.
Order E-book Depth Elevated Steadily after April 2025 Decline
Notes: The chart plots five-day transferring averages of common every day depth for the on-the-run two-, five-, and ten-year notes within the interdealer market from January 2, 2020 to February 27, 2026. Information are for order e-book depth on the inside tier, averaged throughout the bid and provide sides. Depth is measured in hundreds of thousands of U.S. {dollars} par and plotted on a logarithmic scale. Drop traces flag the low factors within the five-day transferring common for the ten-year word, that are centered round March 16, 2020, March 15, 2023, and April 9, 2025.
Measures of the worth influence of trades additionally counsel a pointy deterioration of liquidity in April 2025, a fast rebound, and regular enchancment thereafter. The subsequent chart plots the estimated value influence per $100 million in internet order circulate (outlined as buyer-initiated buying and selling quantity much less seller-initiated buying and selling quantity). The next value influence suggests lowered liquidity. Worth influence rose abruptly on April 2, however then rapidly reverted. By early 2026, value influence had change into as little as at any time since 2021.
Worth Affect Trended Down after April 2025 Enhance
Notes: The chart plots five-day transferring averages of slope coefficients from every day regressions of one-minute value adjustments on one-minute internet order circulate (buyer-initiated buying and selling quantity much less seller-initiated buying and selling quantity) for the on-the-run two-, five-, and ten-year notes within the interdealer market from January 2, 2020 to February 27, 2026. Worth influence is measured in 32nds of a degree per $100 million, the place a degree equals one p.c of par. Drop traces flag the peaks within the five-day transferring common for the ten-year word, that are centered round March 17, 2020, March 16, 2023, and April 9, 2025.
Summing Up
Treasury market liquidity over the previous 12 months was marked by a sudden however temporary worsening after the April 2, 2025 tariff announcement, adopted by fast enchancment when the proposed tariffs had been partially rolled again. Liquidity steadily improved thereafter, reaching its greatest degree since 2021 in early 2026. Financial uncertainty and rate of interest volatility have elevated because the finish of our pattern interval—given the battle with Iran and its repercussions—underlining the view that Treasury market liquidity warrants continued shut watching.
Henry Dyer is a analysis analyst within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Michael J. Fleming is head of Capital Markets within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
The way to cite this submit:
Henry Dyer and Michael J. Fleming, “Treasury Market Liquidity Since April 2025,” Federal Reserve Financial institution of New York Liberty Road Economics, April 2, 2026, https://doi.org/10.59576/lse.20260402
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Disclaimer
The views expressed on this submit are these of the writer(s) and don’t essentially mirror the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the accountability of the writer(s).
