FAST FIVE: Treasury Market Liquidity & Volatility Problems Could Derail Fed Balance Sheet Reduction
Since the Fed stopped buying Treasuries and started letting bonds fall off its books as they mature, the bond market has experienced increasing volatility and liquidity problems.
When the Fed started quantitative tightening, the artificial demand it created disappeared.
The only way the Fed can tackle inflation is to stop creating money and remove the excess it created from the economy.
But the central bankers know they can't do that without collapsing the Treasury market.
On-the-run Treasuries typically command a premium over off-the-runs in times of market stress.