Lower liquidity is here to stay for a while yet

ON BONDS

With ongoing concerns about the shape of the global economy, risk-aversion will remain prominent, writes OMAM's Stephen Snowden Old Mutual's Stephen Snowden....

While credit market liquidity has improved from the low point in the aftermath of Lehman, it remains well below pre-crisis levels. The reduced provision of liquidity has been caused by a new era of lower risk appetite, higher funding costs for banks and the requirement for them to improve balance sheets. When liquidity declines, volatility rises. As investors lurch between risk-on and risk off, market moves become sharper. The corporate bond market is now less capable of transferring large positions between end investors. The credit market has been volatile in 2010, leaving investm...