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I've heard that this is actually a buyer liquidity problem and not a general liquidity problem...i.e. too many sellers and not enough buyers. Makes since the w
by ragnot 4y ago
I've heard that this is actually a buyer liquidity problem and not a general liquidity problem...i.e. too many sellers and not enough buyers. Makes since the world is trying to offload their foreign reserves to combat the surging dollar and defend their own currencies. Immediate effects will be how the US Gov handles the fact that their interest rate payments are gonna shoot up when they have to roll over the debt.
- naveen99 4y agoThere are plenty of buyers (I just bought some myself). The problem is people who levered up on them (banks, foreign governments, pension funds) don’t want to sell at a loss, because they will go bankrupt.
- credit_guy 4y agoBanks either use Fair Value accounting or Accrual accounting for a given position. If it’s fair value, then the bond is already marked down on the balance sheet. Selling it or not does not result in a profit or a loss, at least not a significant one. If it’s in accrual, it’s held at par so there is no loss on the balance sheet, but they also can’t sell. They need to hold to maturity, that’s the rule.
- naveen99 4y agoYeah, so an inability to sell because they are levered up and using accrual accounting isn’t really a lack of liquidity in the market. It’s a seller liquidity problem, not a buyer liquidity problem. which is a weird type of liquidity problem.
- jbscpa 4y ago“ which is a weird type of liquidity problem” Ah yes. The very definition of “financial accident”