Market Liquidity in Treasury Futures Market During March 2020

We study the behavior of liquidity providers and liquidity consumers in the 10-year U.S. Treasury futures market during the height of the COVID-19 shock in March 2020, a period of market turmoil when demand for liquidity was high. In March 2020, PTFs reduced their volume of liquidity providing trades as a share of total trading volume. However, they still accounted for the lion share of total liquidity provision and their liquidity provision improved market liquidity. In contrast, dealers (banks and non-banks) increased their volume of liquidity providing trades as a share of total trading volume, but their activity did not have a large effect on overall liquidity. Among the traders that place liquidity consuming trades, asset managers had the largest impact on liquidity by increasing transaction costs. Despite a significant attention to the role of basis traders in the Treasury market disruption of March 2020, we do not find evidence for basis traders being important drivers of disruption in Treasury futures market.