Liquidity: has the tide now turned?

Changing macro environment

clock • 3 min read
Kunal Mehta, head of the fixed income specialist team at Vanguard
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Kunal Mehta, head of the fixed income specialist team at Vanguard

After more than a decade of ample liquidity in fixed income markets, it is now starting to fall, highlighting one of the biggest challenges facing bond investors today.

The recent shift in a number of structural factors is now contributing to a decline in liquidity, or the ability to sell a bond at a reasonable price in a reasonable amount of time, for fixed income investors. Interest rates are rising, inflation is up, volatility is on the increase and geopolitical risk continues to weigh on markets. However, the interplay of these macro developments is only part of the challenge facing fixed income investors at the moment. The changing emphasis of global central banks means that while quantitative easing was used to stimulate economic conditions aft...

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