The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Liquidity: When the flood subsides

Fund managers are pouring into primary bond issues because of lack of secondary liquidity. But what happens if that herd mentality remains, or even grows, when the market turns?

If the events of 2007 and 2008 taught the market anything, it is how quickly liquidity can disappear when panic sets in. Even as the credit markets wrestle with the implications of the current central bank-induced surfeit of liquidity, many are becoming increasingly concerned about how that liquidity will react when interest rates eventually rise. 

“The market was in a high state of alert about funding rates increasing in April to May and October to November last year. This gave a good idea how markets would react if surprised,” says Scott Thiel, deputy chief investment officer of fixed income, fundamental portfolios, and head of European and global bonds at BlackRock. 

flood car wreck envelope
'The Street holds 75% fewer bonds and if we do get outflows it is going to be very ugly'

“The selling of positions was met with very poor liquidity. We have been in a full-blown easing cycle for the last five years. All those investment strategies that are predicated on this will be challenged when the situation reverses.”

Concerns about investor concentration seem focused on what might happen if and when liquidity dries up.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree