Chris Martenson
Executive Summary
- Liquidity is drying up
- Volatility is returning
- HFT has dramatically increased crash risk
- The key takeaways for investors
If you have not yet read Part 1: Credit Market Warning available free to all readers, please click here to read it first.
Financial assets are worth what someone will pay for them. A corollary of this is that you’d much rather be trying to buy or sell in markets that are deep and liquid. Thin markets provide bad prices at best, and no bids or offers at worst.
Low trading volumes are worrisome because they are usually accompanied by higher volatility. And those two can easily become dance partners that whirl each other ever faster.
There are numerous warning signs coming from all asset markets, but especially from the bond markets.
Low Liquidity
The issue of low liquidity really jumped out at me roughly a year ago with the news that the utterly broken Japanese government bond (JGB) market had gone an entire 36 hours without a single trade(!!).
Japan bond market liquidity dries up as BoJ holding crosses ¥200tn
Arp 15, 2015
The Bank of Japan’s massive purchases of government debt hit a milestone this week, sucking liquidity out of the market to such an extent that the benchmark 10-year bond went untraded for more than a day, the first time in 13 years.
The current 10-year cash bonds saw its first trade of the week yesterday afternoon, having gone untraded for more than a day and a half.
Trade volume in the benchmark cash bonds so far this month dropped to less than one trillion yen, down about 70% from the same period last year.
(Source)
Thus comes the law of unintended consequences. The main reason for buying JGB’s by the Bank of Japan (BoJ) was to inject a lot of liquidity into ‘the system’ in hopes that the Japanese economy would take off.
While that may have happened to some (slight) extent what also happened was that …
The Warning Indicators To Watch For Trouble In The Bond Market
PREVIEWExecutive Summary
- Liquidity is drying up
- Volatility is returning
- HFT has dramatically increased crash risk
- The key takeaways for investors
If you have not yet read Part 1: Credit Market Warning available free to all readers, please click here to read it first.
Financial assets are worth what someone will pay for them. A corollary of this is that you’d much rather be trying to buy or sell in markets that are deep and liquid. Thin markets provide bad prices at best, and no bids or offers at worst.
Low trading volumes are worrisome because they are usually accompanied by higher volatility. And those two can easily become dance partners that whirl each other ever faster.
There are numerous warning signs coming from all asset markets, but especially from the bond markets.
Low Liquidity
The issue of low liquidity really jumped out at me roughly a year ago with the news that the utterly broken Japanese government bond (JGB) market had gone an entire 36 hours without a single trade(!!).
Japan bond market liquidity dries up as BoJ holding crosses ¥200tn
Arp 15, 2015
The Bank of Japan’s massive purchases of government debt hit a milestone this week, sucking liquidity out of the market to such an extent that the benchmark 10-year bond went untraded for more than a day, the first time in 13 years.
The current 10-year cash bonds saw its first trade of the week yesterday afternoon, having gone untraded for more than a day and a half.
Trade volume in the benchmark cash bonds so far this month dropped to less than one trillion yen, down about 70% from the same period last year.
(Source)
Thus comes the law of unintended consequences. The main reason for buying JGB’s by the Bank of Japan (BoJ) was to inject a lot of liquidity into ‘the system’ in hopes that the Japanese economy would take off.
While that may have happened to some (slight) extent what also happened was that …
I'd like to take a break for a moment from the weakening stock market, the unfolding disaster that is Greece, etc… and share my experience from this past weekend.
I presented at the New Story Festival in CT with my wife Becca. We discussed the importance of nature connection and community, myself covering the essential knowledge that serves to light a fire to ‘do something’ and with Charles Eisenstein eloquently covering the essence of being alive in these times.
When To Be In Joy
PREVIEWI'd like to take a break for a moment from the weakening stock market, the unfolding disaster that is Greece, etc… and share my experience from this past weekend.
I presented at the New Story Festival in CT with my wife Becca. We discussed the importance of nature connection and community, myself covering the essential knowledge that serves to light a fire to ‘do something’ and with Charles Eisenstein eloquently covering the essence of being alive in these times.
On Monday we covered the release of an open letter written to President Obama, issued by a committee of notable political, security and defense experts — which includes past and present members of Congress, ambassadors, CIA directors, and others — on the country's concerning level of vulnerability to a natural or man-made Electro-Magnetic Pulse (EMP).
This week, we've been fortunate enough to get several of the authors of that open letter to join us and explain in depth what they conclude needs to be done to protect against the EMP risk: former CIA Director and current Ambassador James Woolsey, Executive Director of the EMP Task Force Dr Peter Pry, and security industry entrepreneur Jen Bawden.
Former CIA Director: We’re Not Doing Nearly Enough To Protect Against The EMP Threat
On Monday we covered the release of an open letter written to President Obama, issued by a committee of notable political, security and defense experts — which includes past and present members of Congress, ambassadors, CIA directors, and others — on the country's concerning level of vulnerability to a natural or man-made Electro-Magnetic Pulse (EMP).
This week, we've been fortunate enough to get several of the authors of that open letter to join us and explain in depth what they conclude needs to be done to protect against the EMP risk: former CIA Director and current Ambassador James Woolsey, Executive Director of the EMP Task Force Dr Peter Pry, and security industry entrepreneur Jen Bawden.
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