Bringing voices together to promote well functioning markets
Every Friday, we send you an email of top articles related to corporate bond market development. The newsletter is a free service.
Sign Up!
Join Discussion ⌄

Now We Have Two Answers to the ECB Corporate Liquidity Question – Bloomberg

Author: \ August 3, 2016 \ 6 Comments
Full Article: Bloomberg

Now the ECB is in full throes of CSPP, which began June 8th, and disclosed information about its holdings on July 18th, we have the data to test out these liquidity fears. Firstly, a big caveat is in order. There’s no standard and objective measure of bond market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks

Comments
  • Jester
    JesterAugust 7, 2016"This article and debate stops and starts with one key statement from this article: “Firstly, a big caveat is in order. There's no standard and objective measure of bond-market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks. As a result, market benchmarks to gauge a snapshot of liquidity conditions — roughly defined as market participants' ability to buy and sell bonds, on a given stable trading day, without triggering a material s…"
  • Mustang
    MustangAugust 5, 2016"I'm also in the camp that they are creating a bigger liquidity problem. It's very hard to surmise that the ECB isn't creating a liquidity problem when the author correctly admits that: "Firstly, a big caveat is in order. There's no standard and objective measure of bond-market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks. As a result, market benchmarks to gauge a snapshot of liquidity conditions — roughly defined as market parti…"
  • Goose
    GooseAugust 5, 2016"Like others, I am, um, very suspect that the emergence of the ultimate supertanker in the shallow waters of bond market liquidity will have no ill effect. Chart 2 seems to show a gradual widening of the non-eligible vs. the eligible and purchased. Crowding into the trade and the action, plus more trade data points to manage risk against, while the have nots suffer? Supertanker oil spills do severe damage to the ecosystems in which they operate.…"
  • Merlin
    MerlinAugust 5, 2016"I am in the camp viewing the ECB as creating a bigger liquidity problem. Not because they are competing with investors for bonds; in that regard they are just another player in the market, although a big one! But because the program has injected uncertainty into the market about which bonds it is buying/will buy and when they reach their max holding amount. Market makers and investors both now need to navigate this uncertainty in an attempt to determine the proper pri…"
View More Comments
Join the Discussion

Leave a Reply

6 Comments on "Now We Have Two Answers to the ECB Corporate Liquidity Question – Bloomberg"

avatar
  Subscribe  
newest oldest most voted
Notify of
Wolfman
Member
Wolfman
This is a very small market when compared to the sovereign debt markets of previous programs. If the BoE is limiting the purchases to Sterling-denominate corporate debt, it’s even a smaller universe of bonds. Limit that choice to high-grade, non-financials, which they will likely do, and, you guessed it, smaller yet. As a result, we can expect little in the way of a positive impact on the economy and it will come at the cost of corporate bond liquidity. The moves by Central Banks to provide liquidity to their respective economies doesn’t negate the structure of Capital Markets. Does anyone… Read more »
Vote Up0Vote Down  Reply
4 years ago
Cougar
Member
Cougar
The ECB is infusing an otherwise artificial bid to the corporate bond market – forcing yields down to articially lower levels. Investment decisions by bona fide ‘real’ investors therefore become skewed in teh search for yield; in teh extreme confidence is lost in the investment process forcing investors on the sideline and ironically to hold more cash (the antithesis of the desired result and with reduced opportunity cost). This negatively affects the true market price of risk, artificially lowers borrowing rates for corporations – inciting further borrowing at a time of record aggregate private and public debt while incrementally debasing… Read more »
Vote Up0Vote Down  Reply
4 years ago
Merlin
Member
Merlin
I am in the camp viewing the ECB as creating a bigger liquidity problem. Not because they are competing with investors for bonds; in that regard they are just another player in the market, although a big one! But because the program has injected uncertainty into the market about which bonds it is buying/will buy and when they reach their max holding amount. Market makers and investors both now need to navigate this uncertainty in an attempt to determine the proper pricing of a bond. Given their size and impact on the market this creates significant uncertainty and uncertainty reduces… Read more »
Vote Up0Vote Down  Reply
4 years ago
Goose
Member
Goose

Like others, I am, um, very suspect that the emergence of the ultimate supertanker in the shallow waters of bond market liquidity will have no ill effect. Chart 2 seems to show a gradual widening of the non-eligible vs. the eligible and purchased. Crowding into the trade and the action, plus more trade data points to manage risk against, while the have nots suffer?
Supertanker oil spills do severe damage to the ecosystems in which they operate.

Vote Up0Vote Down  Reply
4 years ago
Mustang
Member
Mustang
I’m also in the camp that they are creating a bigger liquidity problem. It’s very hard to surmise that the ECB isn’t creating a liquidity problem when the author correctly admits that: “Firstly, a big caveat is in order. There’s no standard and objective measure of bond-market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks. As a result, market benchmarks to gauge a snapshot of liquidity conditions — roughly defined as market participants’ ability to buy and sell bonds, on a given stable trading day, without triggering a material shift in their price — are imperfect… Read more »
Vote Up0Vote Down  Reply
4 years ago
Jester
Member
Jester
This article and debate stops and starts with one key statement from this article: “Firstly, a big caveat is in order. There’s no standard and objective measure of bond-market liquidity since bonds are predominately traded over the counter (OTC), unlike stocks. As a result, market benchmarks to gauge a snapshot of liquidity conditions — roughly defined as market participants’ ability to buy and sell bonds, on a given stable trading day, without triggering a material shift in their price — are imperfect and subject to debate.” Let’s digest this for a moment. There is a massive debate about a multi-trillion… Read more »
Vote Up0Vote Down  Reply
4 years ago
Related Posts

Blackrock’s Richard Prager: The Liquidity Is Out There – Institutional Investor

March 18, 2016

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

March 25, 2016

US Companies Overpaying for Bonds; Banks May Be to Blame – Reuters

March 31, 2016