Has any financial story been more relentlessly covered in the last few years than the market's worries about
bond market liquidity drying up?
The subject
of bond market liquidity continues to get a lot of attention through press articles and proposed Securities and Exchange Commission (SEC) reforms.
In addition, concerns
over bond market liquidity seem to have convinced investors to abandon crowded positions built up since the end of last year, when QE was first mooted.
The SEC's new Fixed Income Market Structure Advisory Committee aims to tackle
difficult bond market liquidity challenges, with its first official meeting coming up this week.
This article examines the general concept of liquidity, how it applies to the bond market, the factors that
affect bond market liquidity and how the concept of liquidity applies to your investment in money market funds, mutual funds and exchange - traded funds (ETFs).
Features Understanding
What Bond Market Liquidity Means for Your Portfolio The ability to buy and sell with ease can be transitory and depends on both the market for the asset and the size of the transaction.
When we talk
about bond market liquidity it's important to understand that there are lots of different «pools» out there such as high yield bonds, munis, government bonds, etc..
The issue
of bond market liquidity has been a consistent theme over the past years or so with financial executives such as JP Morgan CEO Jamie Dimon, Blackstone CEO Steve Schwarzman, and Oaktree Capital's Howard Marks weighing in on the issue and generally pointing the finger at a lack of liquidity exasperating moves in financial markets.
In the last several months,
bond market liquidity is probably the biggest meme that has permeated markets.
This has increased fears about
bond market liquidity.
Attentive readers have noticed that my morning newsletter often contains the sentence «People are worried about
bond market liquidity.»
People are worried about
bond market liquidity.
It also discusses how recent regulatory changes, as well as low interest rates and settlement failures, are potentially affecting securities - financing markets and, as a result,
bond market liquidity.
In short, where assessing the BOJ's assessment of current and future conditions, look out for language on unemployment, inflation expectations and
bond market liquidity.
If you're worried about
bond market liquidity, the easiest solution is to never put yourself in the position of being a forced seller of bonds.
For now,
bond market liquidity is fine because hedge funds and other non-bank lenders have filled the gap.