Bond managers raise cash as liquidity dries up

Cash positions across bond funds are creeping up as managers struggle to maintain liquidity in an environment of restricted bank lending.

Trading volumes have come down sharply as the banks and brokers – which have traditionally been buyers of fund managers’ bond holdings - deleverage their balance sheets. As a result, managers have had to develop strategies to ensure they can continue to offer investors daily liquidity, and avoid becoming stuck in holdings they want to sell. The average cash position of funds in the IMA’s four bond sectors has increased from 16% to 20% in the last three years, although this also includes bonds of less than one year maturity. Schroders’ Adam Cordery expects professional investors wil...