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US Treasury market conditions and global market reactions to US monetary policy

Author

Listed:
  • Grothe, Magdalena
  • Manu, Ana-Simona
  • McQuade, Peter

Abstract

The US Treasury securities market is the largest and most liquid in the world. Recently, however, its liquidity has declined owing to a combination of factors, including monetary policy tightening and elevated uncertainty about inflation and growth. At the same time, leveraged funds have built up unusually large net short positions in the US Treasury futures market. This box provides empirical evidence that the impact of a US monetary policy shock on domestic and global bond markets may vary depending on conditions in the US Treasury market. Specifically, the results suggest that the effect of a US monetary policy shock might be stronger when market liquidity is low or when net short positions of leveraged funds are large. JEL Classification: E5, F3, G1

Suggested Citation

  • Grothe, Magdalena & Manu, Ana-Simona & McQuade, Peter, 2024. "US Treasury market conditions and global market reactions to US monetary policy," Economic Bulletin Boxes, European Central Bank, vol. 8.
    • Handle: RePEc:ecb:ecbbox:2024:0008:1
    Note: 1601201
    as

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    More about this item

    Keywords

    liquidity; spillovers; United States;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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