No Relief as Shrinking Repo Leaves Bonds Exposed: Credit Markets
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Bond investors are bracing for another year of reduced liquidity and the potential for violent swings as a key part of U.S. debt markets that expedites trading of everything from Treasuries to junk bonds shrinks further.
While the biggest part of the market for repurchase agreements has decreased 18.5 percent over the past two years, banks aren’t yet done complying with regulations that are forcing them to cut back in this area, say analysts at firms from Citigroup Inc. to Nomura Holdings Inc. Dealers and investors report seeing declines in liquidity in times of market stress, including wider gaps between bid and offer prices and more difficulty in completing trades.