Leverage and Margin Spirals in Fixed Income Markets During the Covid-19 Crisis   [open pdf - 0B]

From the Key Takeaways: "[1] For a two-week period in mid-March 2020, government bond markets experienced uncharacteristic turbulence, sometimes selling off sharply in risk-off episodes when they would normally attract safe haven flows. [2] Evidence in the US Treasury market points to forced selling of treasury securities by investors who had attempted to exploit small yield differences through the use of leverage. [3] Even though government bonds are safe assets, large holdings by leveraged investors may detract from orderly market functioning and may necessitate interventions by the central bank."