Darrell Duffie On How to Fix the World’s Most Important Market

Odd Lots

Bloomberg

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🗓️ 28 August 2023

⏱️ 49 minutes

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Summary

In the global financial system, US Treasuries play a special role. They’re basically as close to cash as a financial asset can get and their yields act as the "risk-free" rate against which all other assets are measured. In other words, the US Treasury market is supposed to be the safest and most liquid in the world. But Treasuries have also been at the center of some pretty big financial events in recent years, including the March 2020 sell-off and the collapse of Silicon Valley Bank this year. The Federal Reserve has had to step in to support the market, and now there’s concern over who will buy all these bonds as the US Treasury ramps up its borrowing. So why does the world’s most important market keep experiencing these issues? And what can be done to improve the way Treasuries are bought and sold? In this episode, we speak with Stanford University finance professor Darrell Duffie, who just presented a paper about this very issue to central bankers at the annual Jackson Hole symposium. We talk to him about why the Treasury market keeps experiencing problems, what can be done to fix it, and why the issue is gaining more urgency.

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0:00.0	This is Paul Swinney, here to tell you about another podcast you should be listening to.
0:03.8	The tape.
0:04.8	Join us every weekday as we bring you detailed analysis of the day's wall street action
0:08.5	from Blueberg Intelligence and Blueberg Opinion, a conversation with influential newsmakers.
0:12.9	There's absolutely nothing wrong with having something cash on the sideline you're leaning
0:16.4	pretty hard toward equities.
0:18.7	Because of all the dislocations, there's always relative value trades that you could be doing.
0:23.1	Subscribe to the tape today on Apple, Spotify, Bloomberg.com or wherever you get your podcasts.
0:30.0	Hello and welcome to another episode of The Odd Lots Podcast.
0:43.9	I'm Tracy Alloway.
0:44.9	And I'm Joe Wyzenthal.
0:46.2	Joe, have you been watching Treasury yields lately?
0:48.9	They're up.
0:49.9	They've gone, I'm aware that the line is gone up to the right leg.
0:54.9	Yes.
0:55.9	But not just that.
0:56.9	They've moved quite quickly.
0:57.9	Yes.
0:58.9	I think volatility in the Treasury market has once again become a talking point.
1:03.7	And I always get a little bit of a sense of deja vu because whenever things start happening
1:09.5	in the market for US government bonds, extreme things, these extreme moves, it feels like
1:15.6	everyone says, oh, this shouldn't be happening in the world's most liquid market, the world's
	...

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