We analyze how price discovery in the inter-dealer market for U.S. Treasury
securities differs between stressful times and normal periods. Using tick-by-tick
data on inter-dealer transactions in the on-the-run two-year, five-year and 10-year
Treasury notes, we find that the impact of trades on prices tends to become
significantly stronger on stressful days. This effect remains after accounting for the
faster trading, wider spreads, and shallower depth observed on stressful days.