When Covid hit in March there was massive selling of U.S. treasuries requiring the Fed to step in and be the buyer of last resort so that the financial system would stay firm. It was thought that the selling pressure came from hedge funds but in a recent report, that belief is in error. Instead, the Fed report is pointing to mortgage REITS and electronic trading as contributors to the panic selling in March.

It is important that during a crisis that financial markets remain liquid and functioning. Without it, the crisis spreads and the result will be a depression instead of a recession. The Fed will consider steps to stop any panic selling and remain the backstop for liquidity if they see any repeat.