Liquidity crisis could spark the next financial crash…(Got PMs?)
Traders warn of a global credit ‘meltdown’ if corporate bond markets don’t improve
By Ben Martin
TeleGraphUK
21 Mar 2015
For Norval Loftus, chief investment officer at Allegra Asset Management, trading corporate bonds is not as easy as it used to be.
“It’s like night and day compared with six or seven years ago,” the bond market veteran says. “There’s no comparison. It’s even tougher than it was six or seven months ago. It’s getting more and more difficult all the time.”
He is not alone. Investors across corporate bond markets are finding it harder to buy and sell company debt. And some investors are beginning to fear that the lack of liquidity will be the spark that ignites the next crisis in financial markets.
Liquidity is generally taken to mean the ease with which an investor can quickly buy or sell a security without moving its price. As regulation of banks tightens, the liquidity, particularly of European and US credit markets, has evaporated, prompting a host of regulators and central banks to sound warnings about the difficult trading environment.
A rate hike by the US Federal Reserve, which would be the first since 2006, could trigger turmoil. Given the bond market is much larger than the equity market, and investors have piled into fixed income in recent years, fears are growing that when credit investors attempt to sell bonds en masse, the illiquidity in the market has the potential to cause a crisis of a similar magnitude to the credit crunch.
The Rest…HERE
