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Liquidity — A Key Concern For 2016? 

December 23, 2015

Rupert Hargreaves, ValueWalk

Liquidity remains a concern across all markets, according to Goldman Sachs’ special, end of the year, “Top of Mind” Global Macro Research report.

The bank’s research shows that evidence of funding strains and lack of liquidity has arguably grown, particularly in rate-sensitive products over the past twelve months. In particular, Goldman highlights four key trends that have stood out over the last 12 months, which support the above conclusion, and indicate that the liquidity situation is only going to deteriorate further next year.

Goldman’s four key liquidity-indicator trends are as follows:

1. Cash products have underperformed synthetics. The regulatory and liquidity environment has made a long position in cash (e.g. long HY cash via the rates hedged iBoxx HY index) more awkward to execute than a position in synthetics. This is reflected in the rates market where the dramatic back-up of unsecured repo rates (used to fund cash) vs. secured Libor rates (used to fund synthetics) reflects increasing funding and balance sheet strains. Read more

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