![\"image](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/04\/LSE_2026_liquidity-past-year_fleming_460.png\")
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In this post, we examine the evolution of U.S. Treasury market liquidity over the past year, which has witnessed myriad economic and political developments. Liquidity worsened markedly one year ago as volatility increased following the announcement of higher-than-expected tariffs. Liquidity quickly improved when the tariff increases were partially rolled back and then remained fairly stable thereafter (through the end of our sample in February 2026), including after the recent Supreme Court decision striking down the emergency tariffs and the subsequent announcement of new tariffs.<\/p>\n
Why Treasury Market Liquidity Matters<\/p>\n
The U.S. Treasury market is the largest securities market in the world, with more than $30\u00a0trillion in marketable debt outstanding as of February\u00a028. The market is used by the Treasury Department to finance the U.S. government, by the Federal Reserve to implement monetary policy, and by financial institutions to manage interest rate risk and value other securities. Liquidity is essential to all of these uses and is therefore followed closely by market participants and policymakers.<\/p>\n
How We Measure Treasury Market Liquidity<\/p>\n
We define market liquidity as the cost of quickly converting an asset into cash (or vice versa). As in\u202four past Staff Report<\/a>, we look at three liquidity measures, estimated using high-frequency data from the interdealer market: the bid-ask spread, order book depth, and price impact. The measures are calculated for the most recently auctioned (on-the-run) two-, five-, and ten-year notes over New York trading hours (defined as 7:30 a.m. to 5 p.m., Eastern\u00a0time). <\/p>\n Volatility\u00a0and News\u00a0over the Past Year<\/p>\n Because volatility is tightly linked to Treasury market liquidity (see this LSE post<\/a>, for example), we first assess price volatility around important news events since April 2025. Volatility reflects the uncertainty that often emanates from economic and political developments. We measure so-called realized volatility (volatility based on actual price variation) at a daily level for the same securities\u2014and using the same data\u2014employed for our liquidity measures. <\/p>\n The chart below shows that volatility rose sharply after the April 2,\u00a02025 tariff announcement<\/a>, peaking between April\u00a07 and April\u00a09. Treasury yields initially declined following the April\u00a02 announcement (perhaps due to flight-to-safety behavior by investors), with the 10\u2011year yield declining from about 4.2\u202fpercent to as low as 3.9\u00a0percent on April\u00a04 before closing the day at about 4.0\u00a0percent (see the slide deck<\/a> accompanying this May speech<\/a>\u202fby Roberto Perli, manager of the System Open Market Account).<\/p>\n Volatility Trended Down after April 2025 Spike<\/p>\n At the start of the next trading week, the ten-year yield opened lower than Friday\u2019s close but rose rapidly, from about 3.9\u00a0percent to 4.5\u00a0percent, or roughly 60\u00a0basis points, between 8 p.m. on April\u00a06 and midnight two days later. Some analyses<\/a> suggest the unwinding of swap spread trades contributed to the rise in yields while others<\/a> point to foreigners\u2019 decreased willingness to hold Treasuries. On April 9, President Trump announced<\/a> that most of the new country-specific tariffs were being postponed for 90\u00a0days. The ten-year yield declined sharply that day, later ending the week about 20\u00a0basis points higher than its level at the time of the April\u00a02 announcement.<\/p>\n After April\u00a09, volatility quickly declined to more normal levels and continued trending down in subsequent months as additional tariff-related news was announced: the implementation of the reciprocal tariffs, the Supreme Court decision striking down the tariffs<\/a>, and the immediate imposition of new temporary tariffs<\/a>. There was a blip up in volatility in February\u00a02026 around the releases of the employment report (February\u00a011) and consumer price index (February\u00a013) but not around the Supreme Court decision (February\u00a020). Note that our analysis ends with the last trading day of February\u00a02026 and hence does not reflect effects from the conflict with Iran, which started the next day. <\/p>\n Market Liquidity\u00a0over the Past Year\u00a0<\/p>\n The bid-ask spread is the difference between the lowest ask price and highest bid price for a security, with a wider spread suggesting worse liquidity. Bid-ask spreads, shown in the chart below, widened markedly after the April\u00a02 tariff announcement, albeit much less than in March 2020<\/a> and even somewhat less than during the March 2023 regional banking turmoil<\/a>.\u202fBid-ask spreads narrowed after the April\u00a09 announcement that the new tariffs were mostly being postponed and since then have been similar to levels typically observed in recent years. <\/p>\n Bid-Ask Spreads\u00a0Were Relatively Stable\u00a0after April 2025 Widening\u00a0<\/p>\n Order book depth is measured as the average quantity of securities posted for purchase or sale at the best bid and offer prices. Lower depth implies worse liquidity.\u202fThis metric also points to relatively poor liquidity in April\u00a02025, when available depth declined to the lowest levels since March\u00a02023 (see chart below). Depth quickly recovered and by late summer 2025 was at levels similar to, if not better than, any time since the Fed\u2019s post-COVID tightening cycle started in March 2022. Depth continued trending higher through February\u00a02026.<\/p>\n Order Book Depth Increased Steadily after April 2025 Decline\u00a0<\/p>\n Measures of the price impact of trades also suggest a sharp deterioration of liquidity in April\u00a02025, a quick rebound, and steady improvement thereafter. The next chart plots the estimated price impact per $100\u00a0million in net order flow (defined as buyer-initiated trading volume less seller-initiated trading volume). A higher price impact suggests reduced liquidity.\u202fPrice impact rose abruptly on April\u00a02, but then quickly reverted. By early 2026, price impact had become as low as at any time since 2021.<\/p>\n Price Impact\u00a0Trended Down\u00a0after April 2025 Increase<\/p>\n Summing Up<\/p>\n Treasury market liquidity over the past year was marked by a sudden but brief worsening after the April\u00a02,\u00a02025 tariff announcement, followed by quick improvement when the proposed tariffs were partially rolled back. Liquidity steadily improved thereafter, reaching its best level since 2021 in early 2026. Economic uncertainty and interest rate volatility have increased since the end of our sample period\u2014given the conflict with Iran and its repercussions\u2014underlining the view that Treasury market liquidity warrants continued close watching. <\/p>\n Henry Dyer is a research analyst in the Federal Reserve Bank of New York\u2019s Research and Statistics Group.<\/p>\n Michael J. Fleming<\/a>\u00a0is head of Capital Markets in the Federal Reserve Bank of New York\u2019s Research and Statistics Group.\u00a0<\/p>\n \n How to cite this post: @article{DyerFleming2026, Disclaimer![\"](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/04\/LSE_2026_liquidity-past-year_fleming_ch1_44b40c.png\")
Source: Authors\u2019 calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of price volatility for the on-the-run two-, five-, and ten-year notes in the interdealer market from January 2, 2020 to February 27, 2026. Price volatility is calculated for each day by summing squared one-minute returns (log changes in midpoint prices) from 7:30 a.m. to 5 p.m., annualizing by multiplying by 252, and then taking the square root. It is reported in percent. Drop lines flag the peaks in the five-day moving average for the ten-year note, which are centered around March 11, 2020, March 14, 2023, and April 8, 2025.<\/p>\n![\"](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/04\/LSE_2026_liquidity-past-year_fleming_ch2_77f2a6.png\")
Source: Authors\u2019 calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of average daily bid-ask spreads for the on-the-run two-, five-, and ten-year notes in the interdealer market from January 2, 2020 to February 27, 2026. Spreads are measured in 32nds of a point, where a point equals one percent of par. Drop lines flag the peaks in the five-day moving average for the ten-year note, which are centered around March 16, 2020, March 15, 2023, and April 9, 2025.<\/p>\n![\"](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/04\/LSE_2026_liquidity-past-year_fleming_ch3_630586.png\")
Source: Authors\u2019 calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of average daily depth for the on-the-run two-, five-, and ten-year notes in the interdealer market from January 2, 2020 to February 27, 2026. Data are for order book depth at the inside tier, averaged across the bid and offer sides. Depth is measured in millions of U.S. dollars par and plotted on a logarithmic scale. Drop lines flag the low points in the five-day moving average for the ten-year note, which are centered around March 16, 2020, March 15, 2023, and April 9, 2025.<\/p>\n![\"](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/04\/LSE_2026_liquidity-past-year_fleming_ch4_487668.png\")
Source: Authors\u2019 calculations, based on data from BrokerTec.
Notes: The chart plots five-day moving averages of slope coefficients from daily regressions of one-minute price changes on one-minute net order flow (buyer-initiated trading volume less seller-initiated trading volume) for the on-the-run two-, five-, and ten-year notes in the interdealer market from January 2, 2020 to February 27, 2026. Price impact is measured in 32nds of a point per $100 million, where a point equals one percent of par. Drop lines flag the peaks in the five-day moving average for the ten-year note, which are centered around March 17, 2020, March 16, 2023, and April 9, 2025.<\/p>\n![\"henry](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/04\/henry-dyer.jpg\")
<\/p>\n![\"Portrait:](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2025\/11\/fleming-michael_90x90.jpg\")
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Henry Dyer and Michael J. Fleming, \u201cTreasury Market Liquidity Since April 2025,\u201d Federal Reserve Bank of New York Liberty Street Economics, April 2, 2026, https:\/\/doi.org\/10.59576\/lse.20260402<\/a>
\n BibTeX: View<\/a> | Download\n <\/p>\n
\n author={Dyer, Henry and Fleming, Michael J.},
\n title={Treasury Market Liquidity Since April 2025},
\n journal={Liberty Street Economics},
\n note={Liberty Street Economics Blog},
\n number={April 2},
\n year={2026},
\n url={https:\/\/doi.org\/10.59576\/lse.20260402}
\n}<\/p>\n
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).<\/p>\n","protected":false},"excerpt":{"rendered":"Henry Dyer and Michael J. Fleming In this post, we examine the evolution of U.S. Treasury market liquidity…\n","protected":false},"author":2,"featured_media":183301,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[9,11,10],"class_list":{"0":"post-183300","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-new-york","8":"tag-new-york","9":"tag-new-york-headlines","10":"tag-new-york-news"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/183300","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/comments?post=183300"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/183300\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media\/183301"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media?parent=183300"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/categories?post=183300"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/tags?post=183300"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}