Remarks of Deputy Secretary Justin Muzinich at the 2020 U.S. Treasury Market Conference
                     Remarks of Deputy Secretary Justin Muzinich at 
the 2020 U.S. Treasury Market Conference
Thank you for the opportunity to address the Treasury 
Market Conference again this year, a year in which 
we’ve faced so many unexpected and challenging 
developments.
If we could meet in person, we would again be at the NY Fed, 
which would have been especially appropriate this year 
because the NY Fed, and the rest of the Federal Reserve 
System, have been invaluable partners during this unique 
period.
In addition to thanking the Fed, I want to emphasize what an 
honor it is to serve the country in this moment of national 
reckoning.  The COVID-19 outbreak has been a traumatic 
experience for so many Americans, and has severely disrupted 
our economy and our way of life.  While I have always regarded 
public service as a privilege, it has been a particular honor to 
serve in this time of need, and to contribute, alongside many at 
this conference, to our collective national response.
My remarks today will cover three areas. First, I will discuss 
the unprecedented demand for liquidity at the start of the 
crisis that disrupted the Treasury market. Next, I will move 
beyond the Treasury market to discuss broader policy 
responses undertaken by the Administration and the Federal 
Reserve. Finally, I will pose some questions that I believe are 
important to study in order to inform future policy.
Treasury Market Conditions
Beginning with the Treasury market itself, March and April 
saw a sudden, drastic flight to safety in the face of a rapidly 
changing economic outlook. Treasury yields declined by 
more than 100 basis points in a matter of days. 
As is well established, these events disrupted Treasury 
market liquidity, sending bid-offer spreads to many 
multiples of their usual levels, with greater stress in 
longer maturities and “off-the-run” securities, as Figure 1 
shows.
But this period was not an ordinary blip in liquidity 
conditions, it was a nearly unparalleled disruption that 
required significant purchases by the Federal Reserve to 
restore market functioning.  What made this event 
unique? While many observers have focused on dynamics 
in a particular market segment or a specific trading 
strategy, the behavior of the Treasury market was really a 
combination of two broad developments:
first, a rush for liquidity and safety by nearly all categories 
of investors and, second, a significant reduction in 
liquidity provision by both dealers and principal trading 
firms (PTF). 
On the investor side, as risks from COVID began to build 
in the last week in February and first week of March, 
flows exhibited typical “flight-to-safety” behavior, 
primarily into shorter maturity, on-the-run coupons as 
Figure 2 shows. While short-dated coupons often see 
greater demand during volatile periods, by the second 
week of March concerns had sufficiently escalated that 
investors were showing a strong preference for bills, the 
most liquid and shortest maturity of all Treasury 
securities. 
This can be seen in the reversal of net flows into 
coupons and customer net purchases of bills, which 
sent bill rates briefly negative, and in the massive 
growth of government money market fund assets 
(Figure 3).
The $13 trillion off-the-run Treasury market (vs. $250 
billion on-the-run market) was subject to the same net 
selling pressure as on-the-run coupons. The net selling 
was broad-based, and was sustained over several days 
as seen in Figure 4.  Asset managers sold longer-dated 
off-the-run Treasuries to position ahead of outflows. 
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