Barclays Flags $31 Trillion Treasury Market Requires Official Interventions
The $31tn US Treasury market has expanded by nearly 9% annually since 2009, outpacing bank capital growth of just 3.8% per year since 2019, Barclays strategists warn. They say this liquidity gap has made official interventions, such as Fed bond purchases ballooning to $5tn, necessary to avoid market dislocations.
1. Market Imbalance
Barclays strategists led by Samuel Earl and colleagues highlight that the US Treasury market has grown by nearly 9% annually since 2009 to $31 trillion, while bank capital rose only 3.8% per year since 2019, creating a significant liquidity shortfall.
2. Intervention History
They explain that this mismatch has reversed decades-long stability trends, prompting recurring official interventions. The most substantial involved Federal Reserve purchases of Treasuries that lifted its holdings from $2 trillion in early 2020 to almost $5 trillion by 2022 to address sudden liquidity demands.
3. Barclays' Outlook
The team warns that expectations of backstops may fuel leveraging, heightening disorderly unwind risks. They argue that enduring market functioning will depend on future central bank support, potentially influencing trading revenues and risk management strategies at institutions like Barclays.