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S&P: All That Bond Market Illiquidity is Bad for Bond Funds, But Not Banks – Bloomberg

bullfighting

The benefit of banks no longer warehousing as much bond risk, is that S&P doesn’t think they’ll be particularly vulnerable in the event of a big bond sell-off. The downside is that all those funds and vehicles that large and small investors have been using to snap up debt — such as exchange trade funds or mutual funds  are more susceptible to such an event since they promise ‘instant’ liquidity on what may prove to be illiquid underlying assets.

Comments
  • Goose
    GooseJuly 5, 2015"David Light’s excellent blog post (link found in this week’s newsletter) does an excellent job outlining how the Fed has similar thoughts to S&P’s statement “..Nevertheless, it is far from clear that market illiquidity will necessarily create systemic risk.” Mr. Light concludes the Fed is more than willing to accept less bond market liquidity to safeguard the overall financial system. Of course, that leaves John Q. Public investor, as the one holding the bag when…"
  • Merlin
    MerlinJuly 2, 2015"Zzzzzzzz....oh, hi there. I hope they aren't paying these authors at Bloomberg very much. A lot of regurgitation (do you recall asking "How did we get here?") where they show us some figures from the S & P report and then a concluding paragraph from S & P. Guess we should read the report to see if they provide substantiation for their conclusions because via the article it just seems like some people pontificating and there are enough of us that take that shor…"
  • Wolfman
    WolfmanJuly 2, 2015"It seems to me that the reduction in inventory by the banks is first and foremost a reflection of the end of a 30 year bull market in rates. In this game of musical chairs, they don't want to be the last person standing when the music stops. This isn't by accident, but by prudent planning by the banks. I would agree with the conclusion that the banks will be impacted to a lesser extent that others, but to what degree the others will be impacted is the real question. G…"

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Wolfman
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It seems to me that the reduction in inventory by the banks is first and foremost a reflection of the end of a 30 year bull market in rates. In this game of musical chairs, they don’t want to be the last person standing when the music stops. This isn’t by accident, but by prudent planning by the banks. I would agree with the conclusion that the banks will be impacted to a lesser extent that others, but to what degree the others will be impacted is the real question. Good article for the end of a holiday shortened week.… Read more »
Slider
Guest
Zzzzzzzz….oh, hi there. I hope they aren’t paying these authors at Bloomberg very much. A lot of regurgitation (do you recall asking “How did we get here?”) where they show us some figures from the S & P report and then a concluding paragraph from S & P. Guess we should read the report to see if they provide substantiation for their conclusions because via the article it just seems like some people pontificating and there are enough of us that take that short cut already. We expect real research from credible org’s such as S & P and it… Read more »
Goose
Guest
David Light’s excellent blog post (link found in this week’s newsletter) does an excellent job outlining how the Fed has similar thoughts to S&P’s statement “..Nevertheless, it is far from clear that market illiquidity will necessarily create systemic risk.” Mr. Light concludes the Fed is more than willing to accept less bond market liquidity to safeguard the overall financial system. Of course, that leaves John Q. Public investor, as the one holding the bag when liquidity is needed most. Funny how that works, isn’t it? S&P is pinning a lot of hope on investors with long liabilities and committed capital… Read more »
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