Morgan Stanley: Liquidity is deteriorating, and a violent liquidation of U.S. Treasuries is unfolding

MarsBitNews · 2026-03-26T05:43:09+00:00

Morgan Stanley's analysis indicates that the U.S. Treasury market experienced a sell-off this month, especially in the 2-year Treasury bonds, as traders adjusted their expectations for Fed rate hikes, causing yields to soar. Decreased liquidity has led to a rebound in trading volume, primarily out of necessity rather than willingness, reflecting market instability.

MarsBitNews

2026-03-26 05:43:09

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Mars Finance News, on March 26, Morgan Stanley rate strategist said that the sell-off in the U.S. Treasury market this month has characteristics of forced liquidation of two-year Treasuries — as traders abandon bets on Fed rate cuts and start pricing in rate hikes, the yield on the two-year U.S. Treasury surged sharply.

Morgan Stanley strategist led by Eli Carter pointed out in a report on Wednesday that, since the U.S. attack on Iran on February 28, trading data from the CME Group Inc.'s trading platform BrokerTec Inc. shows that “liquidity in the U.S. Treasury market has significantly decreased, especially at the front end.” They noted that longer-term bonds like the 10-year U.S. Treasury remain relatively stable.

The strategist stated, “Wider bid-ask spreads generally suppress trading, but the fact that trading volume is still rebounding reflects that many trades are driven by necessity rather than desire.” Since the conflict began, the yield on the two-year U.S. Treasury has risen about 50 basis points to 3.87%, but Morgan Stanley said their analysis indicates the sell-off has been “exacerbated by position unwinding and deteriorating liquidity conditions.” (Jin10)

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