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Key Words: Yellen warns of ‘dangerous and volatile environment’ as she pledges to bolster Treasury market

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““We’ve experienced energy shocks, food shocks, supply shocks, persistent inflation in many countries around the world, rising interests rates in many parts of the world and we have seen some financial market volatility and rising liquidity and credit concerns,””

— Treasury Secretary Janet Yellen

That was Treasury Secretary Janet Yellen, who warned Monday that the current economic backdrop is “dangerous and volatile,” while stressing that the U.S. economy is “healthy” and the financial system “resilient” during a public appearance at a securities industry conference.

She added that while she doesn’t have evidence of instability currently, the Biden administration is “carefully monitoring financial risks in the United States.”

Yellen spoke of efforts to shore up liquidity in the market for U.S. government debt, after volatility in U.K. bond markets highlighted concerns that that high inflation and rising sovereign debt levels could be sapping demand for Treasury debt.
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“We are very focused on the Treasury market,” Yellen said, adding, “it’s critically important that it is a deep, liquid well functioning and serving as a benchmark for all other assets.”

She added that is expected that given rising volatility that the cost of buying and selling these securities would rise and noted that trading volumes remain high and that traders are not having difficulty executing transactions.

Yellen said that the Biden administration is working across agencies to pursue policies that could bolster liquidity in the markets for U.S. government debt, including a rule proposal from the Securities and Exchange Commission that would force more transactions to be centrally cleared.

“We’re looking at a number of ways to improve resilience,” she said, “but I’m not seeing a problem now in the market.”

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