Bond market liquidity woes

"Get ready for a rocky ride in bond markets. The price of a safer banking system is more danger for investment institutions.

"U.S. and U.K. regulators last week sounded warnings about the knock-on effects for corporate debt markets when large institutional investors face demands for liquidity. These demands could cause more turmoil than in the past because investors now provide much more corporate funding and are more exposed to collateral calls from derivatives.

"The Fed is also concerned about the potential for runs from open-ended mutual funds. A drop in corporate debt prices could prompt a rush to redeem funds, sparking further falls and so on."

Price Impact of Trades and Limit Orders in the U.S. Treasury Securities Market
- Liberty Street Economics