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Stocksak: Yellen calls for steps to improve the resilience of the Treasury market and funds By Stocksak


© Stocksak. FILE PHOTO: Janet Yellen, U.S. Treasury Secretary, participates in a discussion during the annual Freedman’s Bank Forum at Treasury Department in Washington, U.S.A, October 4, 2022. REUTERS/Michael A. McCoy

By David Lawder

(Stocksak). U.S. Treasury secretary Janet Yellen said Monday that the U.S. banking system is resilient despite global volatility. However, the Treasury has taken steps to reduce potential risks in the Treasury and private money markets and bond funds.

In remarks prepared for delivery at the Securities Industry and Financial Markets Association (SIFMA’s) annual meeting in New York, Yellen stated that Treasury was closely monitoring financial sector

“The U.S. banking system has not been a source economic instability. Yellen stated that, while we continue to monitor emerging risks and ensure that our system continues to be resilient, our system continues to work well in the face of uncertainties.

Although the U.S. Treasury Market is currently experiencing more uncertainty about the economic outlook than usual, trading volumes are “robust”, and transactions are being executed. Yellen also said that recent stress events in the Treasury markets had shown the need for steps to increase its resilience.

Yellen stated, “Treasury is working together with financial regulators in order to advance reforms which improve the Treasury market’s ability to absorb disruptions and shocks, rather than to amplify them.”

An index of near-term volatility of the Treasury market from ICE/Bank of America Merrill Lynch is close to the highest level since 2020, when market dislocations in the early stages of the COVID-19 pandemic forced Federal Reserve to intervene to restore order.

Yellen also said that increased market volatility could expose weaknesses in non-bank financial intermediary. She stated that Treasury and financial regulators are working to improve surveillance of leverage in private money and to “develop policy to reduce the first move advantage that could lead investor runs in money-market funds and open end bond funds.”

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