Morgan Stanley: Decreased liquidity in U.S. Treasury bonds; bid-ask spread widening.

Morgan Stanley strategists stated in a report that since the outbreak of conflict in the Middle East, liquidity in the front end of the US Treasury yield curve has deteriorated amid increased volatility. They said this has led to widening bid-ask spreads, while high trading volume suggests forced fund flows. "The increase in trading volume, along with widening spreads, indicates that fund flows are driven by necessity rather than willingness," they said, adding that compared to February, the bid-ask spread for two-year Treasury bonds has expanded by about 27%. "The significant increase in intraday yield volatility is increasingly occurring alongside insufficient front-end liquidity."