Bond Liquidity Crisis Update, An Unexpected Regulatory Outcome

24/7 Wall St.

US Treasury buildingCurrencies may be considered the most liquid of all quoted markets, but the most liquid market that most investors think about day in and day out is the U.S. Treasury capital market for bonds. This market governs the direction of U.S. interest rates, and international interest rates in many cases, each day of the week. So what happens under new regulations when there is now a liquidity gap in the US Treasury market among the regulated primary dealers?

This issue has been brought up by Jamie Dimon of J.P. Morgan, and was later said to be an issue by former Treasury Secretary Larry Summers. The point made was that regulators should make a priority of addressing the problems of bond market liquidity. It was the regulation around “trading activities” which created what is perhaps unintended consequences.

24/7 Wall St. has spoken with an executive of another top firm, which is…

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