A key statistic to watch is the market liquidity in equities and Treasuries. If there is a market shock that increases risk, there will be a move out of equity and into bonds. If there is a rate shock affecting the safe asset, there will be a shift out of long-dated Treasuries into cash. In both cases, a key cost will be the bid-ask spread and the cost of exiting the market.
Equity liquidity is still below average, though higher than during the spring period associated with tariff shocks. Treasury liquidity has increased substantially since the second quarter, but liquidity in the 2-year Treasury remains low.
Liquidity is not a concern until you need it, so risk management should consider the exit costs before a crisis.
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