Powell cautioned mutual funds and other investors in the corporate bond market about recent record levels of borrowing. With dealer balance sheets shrinking, he said, buyers now bear greater liquidity risk.
There are signs that liquidity is improving in corporate debt, such as declines in estimated bid-ask spreads, but “there is some evidence that liquidity has deteriorated for the lowest-rated bonds,” he also said.
In the Treasuries market, changes in technology have allowed trading to move “at extreme speed,” and may have “led to greater liquidity risk, or sudden declines in liquidity.” At the same time, changes in the market structure have led to smaller average trades, making it hard to see “the effect of trading on prices” and measure liquidity.
The post-crisis regulations have affected liquidity, leading both to increases and decreases, Powell said.
“Some reduction in market liquidity is a cost worth paying in helping to make the overall financial system significantly safer,” he said.
two-issues-weighing-on-fed-members-minds
No comments:
Post a Comment