Major bond markets ‘more prone to liquidity imbalances’, says FSB
More use of debt in investment strategies has combined with reduced dealer capacity, report finds
Major bond markets in the US, Europe and Japan have become more prone to bouts of liquidity stress, a Financial Stability Board report finds.
Changes in market structure have driven this trend, argues the study, published on October 20, which looks at “core” government bond markets in recent years.
The report notes how higher debt levels and greater use of debt for trading, hedging and liquidity management has met with reduced market-making. Dealer banks now have “lower risk warehousing
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