The stress is reflected in a variety of measures --- all of which "indicate a more impaired market,'' Goldman Sachs strategists write.
Signs of stress are emerging in the ordinarily well-functioning U.S. rates market, worsening as the Russia-Ukraine conflict rages on.That stress is reflected in various measures of liquidity and market depth, along with the price impact of order flows and yield dispersion — all of which “indicate a more impaired market,” Goldman Sachs Group Inc. GS strategists Praveen Korapaty, William Marshall and Avisha Thakkar wrote in a note Tuesday.
Investors depend heavily on the U.S. rates market, particularly the $23 trillion Treasurys sector, to function healthily. Ordinarily, the Treasury market is the deepest, most liquid fixed-income market in the world, so fissures in its functioning can spill over into the rest of the financial system.
A chart compiled by Goldman Sachs shows that market depth has worsened across the board, and had already started declining before the Russia-Ukraine conflict. Market depth refers to the market’s ability to absorb large orders without significantly impacting prices. Depth, along with price impact metrics, are now “closer to levels last seen in the midst of the Covid shock, suggesting fairly high risk of disorderly price action.
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