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Everyone is Worried About the Thing Markets Need Most, But They’re Not Asking the Right Questions – Business Insider

Full Article: Business Insider

 

The bond-market-liquidity issue is a complex one, and it often seems that market participants are talking at cross purposes, and/or touting their book. 

Comments
  • Mustang
    MustangMarch 26, 2016"Few comments: 1. Blackrock talking about a looming liquidity crisis makes them an outlier and may have put a stutter step in its' FI inflow. You don't hear many other buyside firms talking about the impending liquidity landmine. "Hey guys, we were just kidding about that liquidity stuff. Everyone in the water... it's just fine." 2. Regulators are almost handcuffed to say that liquidity is good. Otherwise if it wasn't ok, then it would be their fault. Decreased liquidi…"
  • Jester
    JesterMarch 26, 2016"First of all, an article on recent statements on liquidity with no mention of Blackrock’s 180 degree turn on this topic?.....move on, nothing to see here. There is so much to say about this topic, but I am halfway through a bag of Cadbury Hard Shell Eggs, so I am going to deliver the Cliff’s Notes version for you dear readers. Liquidity is the most misunderstood topic in financial markets today. 95% of what comes out of people’s mouths is either flat out wrong or insa…"
  • Wolfman
    WolfmanMarch 25, 2016"Here's the thing: Most investors care about trading in size and trading when markets are moving dramatically. In both these key areas, markets appear to be in much worse shape. Can fixed income be sliced and diced into small pieces like FX and Equities and operate as an order-driven market? If so, there is no liquidity problem. It can't and there is. The very nature of the market cries out for a liquidity provider role and as persistently low rates and increasingly re…"
  • Goose
    GooseMarch 25, 2016"It's a closed market Friday, but the FNL is keeps on trucking. The emergence of huge new issue deals, and having TRACE as the only statistic for measurement has fed into the concept that the market liquidity is fine. Issue size and participant breadth lead to more interest in transaction. This leads to a lot of TRACE prints, which leads to dealers feeling comfortable knowing where the market is and the bond’s liquidity profile, which leads to tighter markets and for d…"

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5 Comments on "Everyone is Worried About the Thing Markets Need Most, But They’re Not Asking the Right Questions – Business Insider"

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Merlin
Member
Kudo’s to Matt Turner for putting this in a nice simple matter of fact way and questioning why the differing opinions as opposed to arguing for one side or the other. Gives us an opportunity to do that! It is simple, the academics and regulators are simply wrong! The methodology that I have seen so far is flawed in many ways as much of it uses TRACE pricing to make assumptions about bid/offer spreads. What it fails to capture is the complete lack of a bid/offer when a security isn’t trading. Sure there are plenty of quotes likely available to… Read more »
Goose
Member
It’s a closed market Friday, but the FNL is keeps on trucking. The emergence of huge new issue deals, and having TRACE as the only statistic for measurement has fed into the concept that the market liquidity is fine. Issue size and participant breadth lead to more interest in transaction. This leads to a lot of TRACE prints, which leads to dealers feeling comfortable knowing where the market is and the bond’s liquidity profile, which leads to tighter markets and for decent size. So, liquidity is gravitating to this sub group, while leaving the rest of the market behind. It’s… Read more »
Wolfman
Member
Here’s the thing: Most investors care about trading in size and trading when markets are moving dramatically. In both these key areas, markets appear to be in much worse shape. Can fixed income be sliced and diced into small pieces like FX and Equities and operate as an order-driven market? If so, there is no liquidity problem. It can’t and there is. The very nature of the market cries out for a liquidity provider role and as persistently low rates and increasingly restrictive regulations place every higher restraints on dealers providing liquidity, the likelihood of greater volatility during stressful times… Read more »
Jester
Member
First of all, an article on recent statements on liquidity with no mention of Blackrock’s 180 degree turn on this topic?…..move on, nothing to see here. There is so much to say about this topic, but I am halfway through a bag of Cadbury Hard Shell Eggs, so I am going to deliver the Cliff’s Notes version for you dear readers. Liquidity is the most misunderstood topic in financial markets today. 95% of what comes out of people’s mouths is either flat out wrong or insane. Clearly, there is no basic accepted understanding of the concept. The back and forth… Read more »
Mustang
Member
Few comments: 1. Blackrock talking about a looming liquidity crisis makes them an outlier and may have put a stutter step in its’ FI inflow. You don’t hear many other buyside firms talking about the impending liquidity landmine. “Hey guys, we were just kidding about that liquidity stuff. Everyone in the water… it’s just fine.” 2. Regulators are almost handcuffed to say that liquidity is good. Otherwise if it wasn’t ok, then it would be their fault. Decreased liquidity is due to some combination of: -Increased regulation, that decreased dealer balance sheets -Monetary policy, that has completely skewed asset prices… Read more »
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