Financial regulators are paying close attention to liquidity concerns surfacing across the U.S. bond market, a top Federal Reserve official said on Thursday.

Fed Governor Daniel Tarullo, the U.S. central bank's top financial regulation official, said that while bond liquidity is a concern, the behavior of the market is not yet showing significant fluctuations in pricing.

Tarullo was among several speakers at an Institute for International Finance summit who addressed the issue of a plunge in broker-dealer bond inventories and the impact this could have in times of financial stress.

Prior to Tarullo, Larry Fink, the CEO of BlackRock, voiced similar worries but held a more sanguine view.

"We do have a big reduction of liquidity in the bond market," Fink said during an earlier panel at the summit, adding that such a drop should not be a surprise.

Fink, who runs the world's largest money manager, said that if the financial industry fails to move more capital market activity to transparent exchanges, the next crisis will "probably be oriented to lack of liquidity."

"You could have the potential for frozen markets, because of no buffers," Fink said. "I don’t think it will happen but these are the issues I worry about."

Tarullo and Fink have been joined lately by other financial regulators and industry professionals discussing bond market liquidity. Fed officials have pointed to the potential trouble set up by a surge of fixed income assets and corporate debt issuance, coupled with lower bond inventories held by banks, which could result in greater volatility, wider prices and a liquidity crunch, in the face of stress in the market.

SLOWER QUARTER

Turning from bonds to bank regulation, Tarullo said not to expect many changes to an upcoming global plan and set of rules to make financial institutions more resilient in withstanding a financial crisis.

Tarullo, as the Fed's top bank regulator, rarely speaks about monetary policy but he addressed the uncertain economic outlook on Thursday.

Economic data so far in the second quarter fail to show the kind of U.S. recovery that was evident in the data last year in the same period, he said, echoing a view shared by his fellow board members.

Tarullo said transitory factors contributed to the negative first-quarter U.S. gross domestic product growth reading, but that it remains to be seen if that weakness fades or persists.