Morgan Stanley: Market volatility caused by wars leads to decrease in liquidity of US Treasury bonds.

Morgan Stanley's interest rate strategist stated that the decline in the US bond market this month is showing characteristics of forced selling of two-year treasuries. Traders have abandoned bets on the Fed cutting rates and have started to factor in rate hikes, leading to a significant increase in the two-year treasury yield. A report by Morgan Stanley's strategist team led by Eli Carter on Wednesday highlighted that trading data from CME's trading platform BrokerTec shows that market liquidity in the US bond market has decreased significantly since the US strike on Iran on February 28, especially in the short end. They noted that longer-term securities such as 10-year treasuries have remained relatively stable. The report pointed out evidence such as widening bid-ask spreads and increased trading volumes despite higher transaction costs, which would typically dampen trading. The strategists found that the bid-ask spread for recently issued two-year treasuries has widened by about 27% in March compared to February.