miércoles, 4 de noviembre de 2015

BofAML _ La trampa de la falta de liquidez

Liquid Insight: The illiquidity trap • We are seeing extreme sensitivity of rates to corporate supply this year, which we think is due to reduced liquidity.• Illiquidity stems from regulatory constraints on risk-taking and balance sheet size, and is probably going to get worse.
•   Low liquidity, high expected supply, and a Fed tightening cycle could combine into a rough year for fixed income in 2016.


Chart of the Day: In 2015 we see a dramatic shift in the market's sensitivity to corporate supply

2010-2014

2015

5y rate higher
5-30 crv steeper
10y sprd tighter

5y rate higher
5-30 crv steeper
10y sprd tighter
Supply shock > 1
50%
58%
60%

66%
69%
66%
Supply shock > 1.5
52%
60%
62%

82%
76%
82%
Typical day
47%
48%
44%

46%
54%
49%
Source: BofA Merrill Lynch Global Research
Chart shows the frequency of occurrence on a close to close basis of rising rates, steepening curve and tightening swap spreads. The "typical day" is the average frequency over the entire sample.

       

Signs of extreme illiquidity in rates markets
Corporate supply traditionally had little effect on interest rates. In the Chart of the Day, we looked at daily corporate supply over the past six years and found a dramatically different impact in 2015 versus prior years.We looked at daily supply, in 10y equivalents, from 2010 through today, issued in US dollars. We ranked each day's supply by a three-month z-score that compared each day to the average over the last three months normalized by the standard deviation in that three-month period. We looked at what rates and spreads did on days with higher z-scores compared to what rates and spreads did on average over the whole period. The Chart of the Day shows that from 2010 through 2014, 5y rates increased 50% of the time when supply shocks had a z-score greater than 1.0, and 52% of the time when the shock was greater than 1.5, which compared to 47% of the time for the whole sample period. But the frequencies jumped to 66% and 82%, respectively, in 2015, as rates increasedjust 46% of the days on average. The statistics are even more dramatic than that, however. In 2015, through 29 October, the 5y rate increased 67bp on days with supply shocks greater than 1.0, while during that entire period 5y rates actually declined 7bp. In other words, the rally in 5y rates in 2015 occurred on the lower supply days, and on those days the 5y rate actually declined a cumulative 74bp.


See report (attached) for further information.

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