Key Charts - Non-Bank Financial Intermediaries

Less Liquidity, More Risk in Fixed Income
  • Two factors have caused institutional investor bond holdings to rise substantially and dealer inventories to fall: regulations that have decreased the profitability of dealers who trade and carry bonds on their balance sheets, and quantitative easing that has caused investors to leave government fixed-income securities for high-yield and investment grade corporate bonds for bigger returns.
  • The confluence of these factors has constricted the supply of fixed income to investors on the secondary market, while demand has risen. Dealer holdings of bonds have fallen to an all-time low, down 89 percent from their 2007 peak, while mutual fund holdings of bonds more than doubled in the same period. This means the amount of mutual fund credit assets susceptible to declines in liquidity equals nearly $870 billion versus $300 billion during the credit crisis in 2008.
  • With the inclusion in those assets of exchange-traded funds that track corporate debt, buy side bond holdings further exceed dealer inventories.

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Less Liquidity, More Risk in Fixed Income

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