This page has been archived and commenting is disabled.
BlackRock Slams "Broken Bond Market" Despite Record Bond-Issuance Driven Stock Buybacks
Just over a year ago, we warned on the very real concerns about corporate bond liquidity drying up and the potentially huge problems associated with that, if and when the Fed ever pulls the rug out from the one-way street of free-money injections. It appears, as Bloomberg reports, having realized, we suspect, that they can't get out of their positions, the world’s largest money manager, Blackrock, believes the corporate bond market is "broken" and in need of fixes to improve liquidity "before market stress returns." Ironically, as we have also explained in great detail, it is this 'broken' market that has enabled corporations to borrow cheap enough to buyback half a trillion dollars of their stock in 2014.
As we discussed in great detail here, Federal Reserve intervention has had dramatic unintended consequences in the bond markets...
First, how does one define liquidity? Here is how the smartest guys in the room (and Matt King truly is one of the smartest guy) do:
As the chart points out, the biggest falacy constantly perpetuated by market naivists, that liquidity and volume (in this case in fixed income) are one and the same, is absolutely wrong.
...
The TBAC's conclusion: the longer central planning goes on, the less the actual large "block" trades, and even those are getting smaller.
The blue text above is self-explanatory: the slightest gust of wind, or rather volatility, threatens to shut down the secondary corporate bond market, which already is running on fumes.This can be seen in the final chart of this post which confirms that the Fed is succeeding... to its paradoxical chagrin! Because the more pure liquidity moves to the (Fed-backstopped) Treasury market, the more investors are moving away from the most liquid instruments.
In other words, while the Fed, and the TBAC, both lament the scarcity of quality collateral and liquidity in non-Fed backstopped security markets, it is the Fed's continued presence in the (TSY) market in the first place, that is making a mockery of bond market liquidity and quality collateral procurement.
And without faith in a stable credit marketplace, there is no way that a credit-based instrument can ever truly become the much needed "high quality collateral" to displace the Fed's monthly injection of infinitely funigble and repoable reserves (most benefiting foreign banks).
And now - as Blackrock realizes that its massive (and likely levered) positions face a dramatic liquity risk cost if they are ever to 'realize' any gains from the Fed's handouts (by actually selling), they cry foul and proclaim the bond markets "broken" and in need of government fixes...
BlackRock, the world’s biggest money manager, said the marketplace for corporate bonds is “broken” and in need of fixes to improve liquidity.
BlackRock, a major competitor in the bond market with $4.3 trillion in client assets, urged changes including unseating banks as the primary middlemen in the market and shifting transactions to electronic markets. Another solution BlackRock proposed: reducing the complexity of the bond market by encouraging corporations to issue debt with more standardized terms.
Banks have retained their stranglehold on corporate debt trading despite years of effort by BlackRock and other large investors to eliminate their oligopoly. The top 10 dealers control more than 90 percent of trading, according to a Sept. 15 report from research firm Greenwich Associates. To BlackRock, the dangers of price gaps and scant liquidity have been masked in a benign, low interest-rate environment, and need to be addressed before market stress returns.
“These reforms would hasten the evolution from today’s outdated market structure to a modernized, ‘fit for purpose’ corporate bond market,’” according to the research paper by a group of six BlackRock managers,
...
Standardization would allow more trading to occur on exchanges and other electronic venues, and would help stabilize markets in periods when investors rush to sell bonds, Gallagher said. The risk posed by investors trying to dump bonds after the Federal Reserve raises interest rates is “percolating right under” the noses of regulators, he said.
* * *
So there it is - the truth carefully hidden - Blackrock is in full panic mode knowing that the game-theoretical first-mover advantage does not apply to their selling down their positions since they are simply too large... so we need to "fix" liquidity and standardize markets (to enable easy risk transfer to retail pension funds) or the Mutually-Assured-Destruction card will be played once again.
* * *
Of course, while they are correct in terms of liquidity (for a concerted exit of bond positions), we did not hear them complaining as cheap primary borrowing enabled half a trillion dollars of buybacks in 2014...
to sustain the mirage of economic growth via the stock 'market'...
* * *
This is of course just another canary in the coalmine that confirms trouble ahead in the corporate bond market - as we have discussed at length...
High-Yield Credit Crashes To 6-Month Lows As Outflows Continue
High-Yield Bonds "Extremely Overvalued" For Longest Period Ever
High Yield Credit Market Flashing Red As Outflows Surge
Is This The Chart That Has High-Yield Investors Running For The Hills?
* * *
While the 'market' impact of these facts is potentially economically devastating in its reality-endgame of bursting over-inflated buy-back-driven asset-bubbles, the traders and bankers themselves have also been crushed (schadenfreude-istically for many), as Bloomberg reports,
As trading in dollar-denominated bonds declined 22 percent in the past five years to an average daily $809 billion, so have the jobs, leaving even some of the most senior traders and salesmen moving from firm to firm. Dozens of journeymen are populating an industry that used to attract the young in throngs, lured by money and prestige, according to Michael Maloney, president of fixed-income recruiting firm Michael P. Maloney Inc.
“The business model is broken and 50 percent of the people in our world who are in trading are stuck right now,” Maloney said in an interview in his New York office.
For every 10 of them there’s going to be three or four left,” he said. “What’s the timeframe? Well, everybody I know is looking for a job -- not looking for a job, looking for a career.”
“It’s surprising how quiet a place could be compared to what I had known,” said Stein, who began trading bonds in 1985.
* * *
See what happens, Janet, when you screw with the 'market'?
»
- 11810 reads
- Printer-friendly version
- Send to friend
- advertisements -
Prune juice will give you all the liquidity you want!
Off topic and off color JOKE O'The DAY
If you go to family reunions to "pick up chicks", you may be a red-neck.... or royalty.... or a Jewish banker....
Bullshit.
Blackstone's excuse a priori for the unmitigated disaster of dumping piles of illiquid garbage in a down market.
So true, knukles, so true.
Methinks this "Black" piece is confusing its "Rocks" with its "Stones"....?
Very clever..
So many paper promises, so little collateral of real value.
I feel more and more like the big one is coming very soon. Tesco admitting number fudging here in the UK as the Alibaba IPO beats the records is surely the crest of the wave for this Fed fuelled cycle.
it is always a bad sign when the criminals on wall street won't buy the crap they come up with.
It's also a bad sign when they do, because that's when you know the fed is going to start a program to buy it.
Blackstone better shut the fuck up before the algos short their stock
IS there anybody on the floor? Hello? Hello??
Your afternoon Hypocrite piece.
When Journalists Commit Domestic Violence | The American Spectator
Well it looks like even pussy qualifies for "liquidity"!
"Tightness , immediacy , debth, resiliency.
Blackstone would make a good sacrificial company. Do they know what the sell button looks like anymore?
"after the Federal Reserve raises interest rates" LOL!!!
Did Ben come down with cancer? He clearly stated that rates will not go up in his lifetime.
If Alan Greenspan is any indication of this time line, then, when rates go up, Blackstone will not exist in it's current form.
But hey, you can dream..
Convertible bond trader here.....
Liquidity since the 2008-2009 debacle has been dramatically pared back. We hear from customers (mutual funds, insurance companies, etc) all the time about how bad liquidity it in our market.
Before the crash, dealers ran huge books and routinely made tight markets with large size in even some of the lowest credit names. Now, even the bigger shops routinely fall down on markets or take 1mm and then front-run the sh$t out of the order.
If there is any sort of real panic again in the market like 2008, there will be ZERO liquidity. It's gonna be a real sh$tshow.
In equities, throw HFT's in the mix and it's going to be fun to watch. We WILL see a 10-20% (minimum) meltdown in the near future. It'll be fun to watch....
Blackstone: Not being able to sell their bonds couldn't happen to a better bunch of Pinko Commie Crony Capitalists. They won't be the only ones who can't sell, by the way. The door is small and starting to close...
LooseLee: not going to give you any arrow, but..... Pinko Commie and Crony Capitalists, are really Communists and Fascists.... which go together like a lighted match, in room full of gasoline.... read your WW2 history closely.
super good article hombres
Agendaism University: Preschool for Career Juveniles
The majority flees empire, to build the next empire, global city critters trying to flee their own behavior in the countryside, depending upon natural resource exploitation, both to print money and set up their artificial scarcity toll booths, only to strangle themselves, again.
With no exit, and collapse from the root out, the majority is busying itself building a fascist government again, trying to wrest every last opportunity for extortion with technology, out of their own global population.
If you allow the majority to tell you how to raise your family, with Family Law feudalism, a violation of nearly every clause in the US Constitution, in its implementation by the 4th branch, you get what you see, landlords competing to exploit your children, with isms, in a collapsing system.
American Capitalism collapsed with the gold standard in the 70s, when labor walked out, and Kissinger was sent to China, for a replacement, and American Socialism can only collapse into the resulting entitlement implosion. Both are imports, from Europe, assuming that labor may be extorted with the occupation of real estate, because that is what their sidewalk survey, History, tells them, always with the same outcome.
As you can see, those plagues in London were no more Acts of God than modern medical science is a solution. And politicians in Scotland are no smarter than politicians in London, playing both sides of the Euro, competing to lead the parade, wherever it may go. Whether the critters expand digital QE, do nothing, raise rates, or go back to the gold standard, they strangle only themselves.
Nothing destroys spirit like poverty in the context of property, but peer pressure normalization to ensure the outcome, with nothing more than another false entitlement promise, upon consideration of toys, a false dichotomy producing arbitrary and then capricious and then malicious order, of no interest to labor, for gold, fiat or otherwise.
Regurgitation and peer pressure review, in a positive feedback loop of make-work, to extend the status quo, is neither academic freedom nor education. Labor doesn’t repeat its history, but the majority does, every time. Buying and selling inflation momentum is not an economy; it’s just demand noise, which the Fed is only too happy to supply.
There is nothing new about governing civil marriage from the pontiff out, with public education propaganda, revolving one moron after the next, followed by a pyramid of morons, between the participants and God, as the foundation of civil authority, where the excuse for extending the next duration mismatch is always the outcome from the last duration mismatch, hiding government from itself, with derivative noise complexity, until it consumes everything.
“It is in universities that…the soul of a people mirrors itself…Higher education ‘fails to nurture that tradition of self-knowledge’ that has been the basis of serious learning…Like all such isms, humanism is a party label…trapped in the iron cage of reason…Specialists without spirit, sensualists without heart; this nullity imagines that it has obtained a level of civilization never before achieved…The university possessed only an administrative center that held faculty and students together…The ‘Renaissance mind’ had disappeared.”
Thank you, Clark Kerr, the Chancellor at the University of California, for doing God’s work.
For all the legalese of fighting empire, the University of Baloney only managed to expand it, because the European University is a feudal incorporation, whether it feeds public, private or non-profit corporations, and may only increase rent on decreasing make-work income, with an inflationary wealth effect temporarily disguising the growing purchasing power output gap, caused by the import/export scam among derivative global cities and derivative navy.
Education was and is a mess. Brown is escalating the drought war, and Obama is escalating the nuclear war, be afraid, be very afraid, not. Ever notice that all three corporations take turns trying to steal ideas and destroy the idea-holders, expecting not to blow themselves up, when labor exits?
No majority in History has survived distillation, but maybe this time will be different. Distillation continues, however, regardless of words manufactured at Fantasyland U. If a city critter buys RE in the countryside, expecting RE inflation momentum as profit, and increases rent accordingly, who is responsible for the collapse of entitlements?
Your children need you, not preschool, brought to by Republicans and Democrats, Capitalists and Socialists alike, all of which share the hidden agenda foundation, but let the empire convince you otherwise, with increasing rent on increasingly vacant units, as you like.
Parenting is not about being a slave to a mortgage, or any other empire device, as an example to your children. No matter how many times you fail to escape gravity, the process tells you nothing. Masquerading stupidity with arbitrary complexity doesn’t work, but that never stops the apes from trying.
The majority did you a favor when it re-connected Family Law, if you think about it, because it has now subjected itself to fascism, embedded in every line of code, every device and every appliance it uses, and I am telling you how to wire right around their clocks, which you will find has many useful applications.
It’s the empire’s job to prove that labor is replaceable, which, of course, it can’t. Whether you feed the landlords of feudalism, with civil marriage, is a choice, rewarded by public education, of, by and for consumption, of juvenile toys. Electricity learns, if you train it to do so.
Remember that cartoon where the tree goes in and a pencil comes out? That’s the politics of civil marriage. How the latest machine works is of no concern to labor, except the price to save the remaining participants from themselves, the wage/rent ratio. Pitting specialists against specialists, as a means of control, to hunt down and exploit labor, caused the empire to crash, but keep trying, to place labor behind the Bell Curve, with Family Law, expecting a different outcome.
Your children will face what appears to be majority rule, alone. Train them to train their own accordingly, to be timeless. Don’t vote for bondage, to fund competing hidden agendas, and expect discovery. History is never a guide, but for the majority, distilling itself into gravity with a sidewalk survey, on the other side of the telescope. Put away the telescope and open your mind, until you can recognize what you are looking for, your other half.
Money is just an arbitrary extension of gravity, unless labor chooses otherwise. Fed and Congress are looking to each other for help, both helpless, and the dictator-in-chief is pretending to be in control, of in-bred behavior. FDR just negotiated a socialist face for capitalism, expending natural resources in the process, which is now coming unglued. Replacing physicians with scientists was a really stupid thing to do. That’s what Ron Paul should be saying, if he were sincere; heal thyself.
$50T and counting…tick, tock.
Kevin, WTF, paste a link. Nobody with a job has time to read your manifesto.
not concerned. skip it if you don't like it.
San Diego...always the irony...
They just figured this out now, eh. So, that's what they get paid the big bucks to do.
I think they mean the bond markets "broken" and in need of government Bailout...
Fixed it for them.
When the credit market closes for corporations, no more share buybacks. The tide goes out and we get to see what the valuation of the stock market really is. Panic ensues as we have yet another credit bust contraction. Corporations are the retail this time around.
Aw, fuck, this is easy to fix. Just have the FED buy all the bonds that Blackstone wants to sell (even if it's their entire portfolio), at a price that exceeds what they paid for the bonds. Then the FED can sell them back to Blackstone later, when the bond market has crashed to the preceived bottom, at marked-to-market prices. Damn, I am so fucking smart (as he dusts off his hands). Heck, this is like taking candy from a baby. Shit, I should run this fucking show, as it is called " privatize profits and socialize losses". (said with dripping sarcasm)
Additional comment: Piss up a rope Blackstone, and then cry me a river of purple, you fucking assholes. (just had to get my softer side out)
you sleep with dogs, (the fed.), you wake up fleaced.