Liquidity Mirage Causes Volatility
In Government Bonds
At the
moment, volatility in the government bond market continues to be a huge theme
in the market and one that investors need to consider and address.
Whatever the initial causes of the adjustment in relative and absolute yield
curves and there are plenty of potential culprits – Federal Reserve rate
expectations, European Central Bank quantitative easing, inflation
forecasts etc. – the subsequent severe volatility has been without doubt
exacerbated by the lack of liquidity.
What
is particularly worrying is that this lack of liquidity is occurring in global
government bond markets, which are deemed to be the
most-liquid fixed-income sectors. To highlight this issue, Bloomberg
reported that on ICAP's BrokerTec platform's (an electronic trading system for
FI markets) April volumes fell 14 per cent from a year ago and were the lowest
in six years. Read More.
Sooner or later the bond market will run
out of bigger fools as inflation is much higher than reported by governments
while investors are losing principal with negative real returns. In essence we
are seeing a global debasement of all currencies under present policies.
When the bonds crash they will bring down the markets too. Time has come to unload those highflyers that have no earning because they can drop like a stone from dollars to pennies, all in the blink of young girl's eyes.
May 19, 2015
