Week InReview: May 13, 2016

NOTABLE QUOTABLE - Bond market liquidity was on the agenda at a meeting of the Federal Reserve's Federal Advisory Council and Board of Governors last week. On page 17 of the meeting record: "While most market participants believe that market liquidity has deteriorated, available data do not indicate conclusively that decreasing liquidity poses a systemic risk to the financial system." Also: "Until the market is stress-tested by a period of significant and sustained outflows, the precise nature of the adequacy and resiliency of corporate bond market liquidity will remain unknown. When interest rates begin to increase and the value of corporate bonds decreases, the net flows into bond portfolios, supplied by primary debt issuance, will change to outflows into the secondary market. In addition, the record amount of corporate debt issuance will, by simple math, turn into record amounts of corporate bond maturities in the coming years. If this debt needs to be refinanced, it could add to a stressed liquidity scenario."

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