27 Jun BANK OF ENGLAND GOVENOR MARK CARNEY’S REMARKS
The bullish in the debt market is at a near unanimity. Most measures are at or near record proportions. One measure of risk relative to the compensation investors receive to hold longer dated obligations is at a 58 year low according to Bloomberg. Perhaps the recent 100 year Austria’s bond offering highlights this point as it was priced to yield just barely above 1% as per Bloomberg.
I have spoken at length about the now $13 trillion stockpile of negative yielding debt and the over $20 trillion of debt that has negative real yields.
Little attention in the US has been focused upon the two prominent and formerly highly regarded European asset management groups that today are suffering a liquidity crisis. Bank of England Governor Mark Carney (equivalent to the FRB Chair) recently testified “these funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally are not liquid.”
Carney further stated “on the broader systemic point around the structure of these funds is a big deal…this is something that could be systemic.”
At this juncture the issues are primary focused in the two firms above, but Carney further stated “there is more than $30 trillion of global assets are held in investment funds and vehicles that promise daily or instamatic liquidity whose underlying asset are potentially illiquid.”
Wow! Can you imagine if the FRB Chair made similar remarks? As noted the issues and the words have fallen on deaf ears, especially in the US.
I must write if the markets suffer a liquidity induced breakdown it would not be the result of some spectacular event such as the 2008-09 economic meltdown nor would such a breakdown usher in a similar economic crisis. It could however alter market perceptions for a generation.
Equities were relatively quiet but Treasuries declined almost point and oil gained another 2.5%.
Last night the foreign markets were mixed. London was down 0.40%, Paris down 0.28% and Frankfurt up 0.06%. China was up 0.69%, Japan up 1.19% and Hang Sang up 1.42%.
The Dow should open nervously higher ahead of a potentially pivotal G-20 meeting. The 10-year is up 2/32 to yield 2.04%.