The Big Squeeze

Making an important addition to the ongoing debate about Treasury-market liquidity, a new paper from the Bank for International Settlements provides sobering data on agency MBS liquidity with significant implications not only for secondary-market liquidity, but also primary-market stability.  Treasury has taken some steps to enhance its market, but none of which we are aware has yet been adopted for agency paper, an omission with potentially systemic consequences if liquidity stress in this $10 trillion market turns to shove.