There is now a lot of handwringing on Wall Street and in the financial media about “liquidity” in the Treasury market. “Liquidity” means a gazillion things, but in this case, it probably means that there doesn’t seem to be a lot of appetite for buying, for example, 10-year Treasury securities at the current yield, and some of the auctions have seen less than stellar demand, as a lot of the big Treasury buyers have stepped away from the market, including large pension funds and life insurers, particularly in Japan. US banks have stopped adding to their $1 trillion in Treasury holdings. And the Fed is now reducing its $5.6 trillion in Treasury holdings by about $60 billion a month.
