Financial Markets and Institutions (849L1)

Financial Markets and Institutions (849L1)
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Course
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University of Sussex
Discuss the expected consequences if the $12 trillion Treasuries are released to the domestic bond market
The Treasury bonds are debt securities issued by the government, and they are issued in order to finance certain state activities such as infrastructure, productive investments, and social benefits. These are the securities that have a sovereign guarantee for the country and compliance with its obligations, and for the investors, it encourages savings, while generates an alternate source of income and can help diversify risk, and treasury bonds have different terms (De Santis, 2016). There are increased liquidity changes in interest rates and exchange rate when the $12 Trillion Treasuries are released to the domestic bond market.
There would be increased liquidity, when there are more U.S. Treasury securities in the domestic market, with the market participants more active. The commercial banks and investors would increase their capital investments in the debt holdings since the costs of transacting and owning the securities would reduce. There would likely be an increase in the number of primary treasure dealers, and this would influence the treasure market liquidity (Asonuma, Niepelt, and Ranciere, 2017). In some cases, there is consolidation in the financial market when there are fewer s firms dominating the market, and the barriers of entry are high. When dealers hold more US treasuries and the risks reduce, more people are willing to own the US treasuries.
Increased liquidity in the financial market encourages an increase in investments as more money is available. However, the Fed may need...