Socio-Economics History Blog

Socio-Economics History Blog

Get Used to Selloffs, Central Bankers Say as They Fret about the Terrifying Moment When Liquidity Evaporates

by mosesman
Global financial tsunami coming??!
Global financial tsunami coming??!
  • Get Used to Selloffs, Central Bankers Say as They Fret about the Terrifying Moment When Liquidity Evaporates
    by , http://wolfstreet.com/  
    Axel Weber, president of the Bundesbank and member of the ECB’s Governing Council until he quit both in 2011 to protest the ECB’s bond purchases, quickly landed a new gig: chairman of UBS. WHIRR went the revolving door. From this perch, he warned in 2012 that the easy-money policies and the expansion of central-bank balance sheets would lead to “new turmoil in the financial markets.” Now that the turmoil has arrived, he’s at it again.
    –
    “Volatility and repricing” – a euphemism for losses – are “part of getting back to normal,” he told NBC. We should get used to it, he said, echoing what ECB President Mario Draghi had said a couple of days ago. So no big deal. However, he was fretting “about the liquidity in the market, in particular under stress situations.”
    –
    Despite unleashing a deafening round of QE on the European markets, the ECB has watched helplessly as government bonds have done the opposite of what they should have done: Prices have plunged, and yields have spiked. The German 10-year yield soared in seven weeks from 0.05% to over 1% on Thursday, before settling down a bit. And it wasn’t even a “stress situation.”
    –
    US Treasuries have sold off sharply as well since the beginning of February, with the 10-year yield jumping from 1.65% to 2.31%, the worst selloff since the taper tantrum in 2013.
    –
    Now one word is on the official panic list: “liquidity.” They’re thinking about the terrifying moment when it suddenly evaporates. 
    –
    Weber blamed central banks for the liquidity issues in the global bond markets. They’ve been buying “vast amounts of assets and putting them on their balance sheets”; not just government bonds but also corporate bonds. Since central banks “buy and hold,” they “take some liquidity out of the market.”
    –
    read more.

end