Liquidity Concern Making JPMorgan’s Asset Manager a Bond HoarderKatie Linsell
With liquidity draining out of the global corporate bond market, JPMorgan Chase & Co.’s asset management unit is advising investors to be prepared to hang on to their bonds.
“We’ve all got to go back to being investors and not traders,” Lisa Coleman, head of global investment-grade credit at JPMorgan Asset Management Inc., said Friday at an event in Madrid. “The bonds that you buy today you may not be able to trade out of very easily and very actively. You’ve got to make sure you’re making the right decisions and living with your positions.”
Bond trading is falling as banks cut inventories to preserve capital in response to regulations. One measure of bond-market liquidity is down 10 percent in the past year and 90 percent since 2006, according to a March report by Royal Bank of Scotland Group Plc. Ownership has become more concentrated, with the world’s 20 biggest asset managers boosting their holdings of bonds by $4 trillion to $9.4 trillion in the four years following the financial crisis in 2008, according to a November report by the Bank for International Settlements.
Issuance has grown as trading has declined, with less than 5 percent of the market changing hands each month in the U.S., down from about 20 percent in 2007, the BIS report showed.
“Everybody’s worried about liquidity in the corporate bond market and I think we’re justified to be worried,” Coleman said.
Investors hoarding securities that are easier to sell is worsening trading, the International Capital Market Association said in January. Investors are concerned that rules to make the credit market more transparent will increase costs and harm liquidity further.
“As the intrusive nature of many regulatory initiatives begins to bite, market participants are anxiously holding onto their stock” of bonds, Godfried de Vidts, chairman of ICMA’s European Repo Council, wrote in the organization’s quarterly report published Jan. 9. “Market making activities have all but stopped as the holding of trading securities is now punitive from a capital point of view.”