Central Banks Now Own A Third Of The Entire $54 Trillion Global Bond Market

Tyler Durden's picture

Two weeks ago we asked a question: maybe behind all the rhetoric and constant (ab)use of sophisticated terms like "gamma", "vega", CTAs, risk-parity, vol-neutral, central bank vol-suppression, (inverse) VIX ETFs and so forth to explain why despite the surging political uncertainty in recent years, and especially since the US election...

... global equity volatility, both implied and realized, has tumbled to record lows, sliding below levels not even seen before the 2008 financial crisis, there was a far simpler reason for the plunge in vol: trading was slowly grinding to a halt.

That's what Goldman Sachs found when looking at 13F filings in Q1, when it emerged that the gross portfolio turnover of hedge funds had retreated to a record low of just 28%. In other words, few if any of the "smart money" was actually trading in size.

Over the weekend, JPM confirmed as much observing that, among other things, it was the retrenchment of active managers, who are being crowded out by central bank QE in the bond space and a shift towards ETFs in the equity space, that acts as long-term depressant of market volatility.

As the bank notes, since the Lehman crisis, the propensity to change positions or trade has declined as active managers have been crowded out by central bank QE, coupled with FX reserve managers’ and commercial banks’ purchases of bonds, all of which are crowding out active bond managers. This crowding out is illustrated in Figure 10 by the ownership of the $54tr universe of tradable bonds globally. 50% of this universe is owned by banks, central banks or commercial banks both of which are rather passive owners of bonds.

While the point is critical, what we would like to highlight in the chart below is the staggering amount of debt instruments owned by central banks: as of the latest data, central banks own just over a third of the global tradable bond universe of $54 trillion, or roughly $18 trillion. How this amount of debt on bank balance sheets is ever unwound, i.e. sold - even with central banks' best intentions  - without crashing the bond market, we don't know.

And then there are ETFs, which have done to hedge fund equity holdings what central banks have done to fixed income crowding out: as JPM notes, "a secular shift away from active equity managers, mutual funds and hedge funds, towards passive equity mutual funds and ETFs. As we discussed before, this secular shift since the financial crisis of 2008 is driven by the inability of active equity managers to outperform established and well-known equity benchmarks such as the S&P500 index. Figure 11 shows this dramatic shift away from active equity funds towards passive equity funds in the US since 2008."

JPM highlights that this crowding out of active managers, both bond and equity managers, has been reducing trading activity since the Lehman crisis. This is shown in Figure 12 by the trading turnover of DM equities and US government bonds, both of which have been declining secularly over the past eight years.

And this brings market liquidity, and volatility, into the discussion. The secular decline in trading turnover has been accompanied by a reduction in market liquidity and, in particular, market depth. In turn, reduced market liquidity and market depth is further discouraging active managers to trade or change positions as the transaction costs hurdle increases. And this reduced propensity to trade or change positions suppresses the average level of market volatility over the long run.

Which while perhaps acceptable in the long run, is a major risk in the short term, as reduced market liquidity can act as an amplifier of market volatility if a shock or surprise forces many investors to change their positions all at the same time. So market liquidity acts as a double-edged sword for market liquidity, and ironically the less liquidity, the less trading, which leads to even less liquidity and so on, until - at least in a "thought experimental" world - just one trade gets to "readjust" (in lieu of a more disturbing verb) the entire market.

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Al Gophilia's picture

Given enough time, they will own the world.  Oops, they already do.

SpanishGoop's picture

And then what.

There will come a time when the world or the people on it will say "you own nothing".

It will only last so long.


J S Bach's picture

Central Banks Now Own A Third Of The Entire $54 Trillion Global Bond Market”

And pray tell… whom doth own the Central Banks?

Aye… there’s the rub.

Whether 'tis nobler in the mind to suffer the slings and arrows of outrageous debt-slavery, or to take Arms against a Sea of Usurers, and by opposing end them: to die, to sleep

~ Hamlet & Eggs - 2017

NotApplicable's picture

Just think how bad it would be if they were actually monetizing debt!

goldandsilverguy's picture

Can't wait fo the next market meltdown!  Got Gold?

Keyser's picture

And the Central Banks printed the faux currency in order to monetize the debt... Money for nothin' and the chicks for free... 

Stuck on Zero's picture

So all the central banks have to do is have a bond bonfire and everything is solved.

SoilMyselfRotten's picture

If memory serves, doesn't Cede & Co. own the whole damn thing?

two hoots's picture

A global monatary/value/distribution reset rest only in their hands, they just have to let their share increase to the point of unquestionalble control.  It will then be time to mass produce Soma.  Without a Trump we, the US, will be thrown in the mix. 

Other:    From the election until now:

Hillary Clinton still concerned about the only thing that ever concerned her, herself, her ego.   She is/was only a speech and wannabe goddess.  I don't care if she ever gets over it as it only paints her true colors for all to see.

Trump is not in the presidency for status, he is fighting the system for the system.  He is willing to take the personal licks to accomplish goals.


7thGenMO's picture

Who are the Owners?  Who are the Owners of The Fed in particular?

A visiting Russian friend said that when Putin came to power it was necessary to go many layers deep to determine who was the invisible hand that owned Russian assets.  In the case of Lukoil, it turned out to be Rothschilds out of Switzerland.

Offthebeach's picture

We have already a New Economic Policy.   

New is nice.  Everyone likes new.  

Economic is...um...ah...economic...um..it's complicated. 

Policy.  It's the word 'planning ' but on  Prozac.  And um don't ask about what the plan is, what it has or hasn't accomplished,  or what happened to the previous plans.




7thGenMO's picture

Amazing how those that thought QE "had to be done" sold their children's future, as JS Bach states above, to the owners of the central banks.  Think I'm exagerrating?  Well, one probable owner actually did buy girls for his orgy island:


Lenin, Trotsky, Beria and the gang would be impressed!


Offthebeach's picture

To think, we once had a country with no central bank, no standing army, pretty much just barbaric gold or silver or personal IOUs, no internal security beurocracy and we conquered a continent,  built every major city, became a world power and basically no debt.

Of course you had to work, shovel to Carnegie,  or eat your bad debts, but no generation further impoverished the next, just the opposite.

fockewulf190's picture

And then what? Perhaps this.

Central bank operations will eventually force the big commercial banks to merge because of reduced profit levels. The central banks will not change their ways though. They will continue to expand their balance sheets and eventually force the remaining banks to close, or merge with a central bank. Then the central banks will start merging amongst themselves, until we are left with one "Iron Bank". Control will be complete, and current levels of bad debt being held in the currently existing fiat currencies becomes irrelevant to an entity that can never be eliminated absent of an extinction level event, and has the power to reset the entire system to a new global currency. Remember, Globalism is their religion, and ultimate control can only be achieved once the entire financial system is assimilated.

They are in a race against time, because if they lose control of this transition, the hundreds of trillions in derivatives outstanding will blow up and the Great Reset will appear. So, central banks print billions every month out of thin air and buy more and more assets with it, while at the same time the "financial system" is being prodded to reduce the total amount of derivatives in existence. Will it work? I doubt it, but it sure looks like the plan to me. They can't afford another Lehman Brothers event, so the Lehman Brothers of the world must disappear...but not from collapsing, it must be done through mergers and acquisitions. Funny that the CB's have to kill off all their children to achieve their goals.

7thGenMO's picture

One Bank to rule Them All

- One Bank to find Them

One Bank to bring Them All

- And in the Darkness bind Them.

- co-opted from the genius of Tolkien

two hoots's picture

Agree with your long range assessment.

Give me cotrol of the Global money supply and I will control the promised land.


yogibear's picture

Slow elimination of many so that only very few hold the wealth.

Like communism/Marxist.

Achieving a North Korean-like economy.  

Scuba Steve's picture

yea, i think that is the dilemma in-bred 3rd-4th-5th generation trust families elites are starting to figure out.


slimycorporatedickhead's picture

Central banks strategy right now:


Step 1: Print Money

Step 2: Buy Bonds

Step 3: ??

Step 4: Profit

illuminatus's picture

And one way or another, they will collect.

rockstone's picture

In one way or another, they always have.

yogibear's picture

Welcome to the North Korean economic plan where only a select few can afford the excesses whereas the masses are only allowed to window shop.

JackMeOff's picture

Nothing to see here people...  ignore that man behind the black curtain.  While Central Bankers think they are "wizards", we all know they are cowards whose hand will eventually be caught in the cookie jar one too many times and then all bets are off.

Deplorable's picture
Audit the Fed......!
Keyser's picture

Better yet, abolish the Fed... 

Give Me Some Truth's picture

As far as I can tell, the ONLY place that "audit the fed" is mentioned is Zero Hedge (okay, and Ron Paul sites). But not at:

1) The NYT

2) Wa Post

3) 4 Network News organizations

4) AP, Reuters, Bloomberg, etc.

5) The White House

6) USA Today

7) "The Rush Limbaugh Show"

8) Congress 

9) Any of the other major newspapers or magazines

10) The National Review, The Weekly Standard, Breitbart

This is actually about 30 MSM organizations (and a couple of "conservative" sites) and our White House (we could include the U.S. Treasury on this list).

If so many members of the establishment don't want something to happen and rarely talk about it, we can conclude that this proposal scares the hell out of these people. For this reason, it must happen. But won't.



LeadPipeDreams's picture

Because those that "own" the Fed also "own" everyone and everything in your list.

Martian Moon's picture

Can't make the theft too blatant

Gotta be smooth about it

So people notice nothing

FreeShitter's picture

Thats why they created a distraction like facebook, lullabying one sheep at a time.

DingleBarryObummer's picture

and they relinquish all their personal private data voluntarily.

Endgame Napoleon's picture

Before all these internet distractions, we had TV, MTV and worried commentators predicting the fall of Western civilization due to unsupervised kids, watching X number of hours of TV every day. Looks like they were right.

Lumberjack's picture

Hillary needs to be institutionalized.


But there comes a point when you just have to accept reality — and Clinton herself seems to be having a tough time with that. The Code interview offers pretty broad insight into Clinton’s psyche, nearly seven months on from the election.

The conversation starts with Mossberg asking Clinton to name one major misjudgment — discounting any outside forces — that her campaign made and that she wishes she had done differently. It took Clinton 17 seconds to mention the word “Russians” — and a further 10 seconds to bring up the way her private email server was used against her. Keep in mind, this was after Mossberg asked her to name just one legitimate mistake she and her campaign made. She couldn’t do it.

illuminatus's picture

There is a clinical name for her disease, it is caused by cannibalism.

Lumberjack's picture

WB-7 has a pix of Hillary with a Tse-Tse fly on her face. Must be the second or so time she was bit.

Endgame Napoleon's picture

It was not even the server issue that ensured Clinton's loss, although the foreign policy issues are all that the MSM talks about. It went back farther than that. Hillary is associated with policies launched during her husband's reign, like NAFTA and the ramp up of trade with China, that accelerated the demise of the U.S. middle class via offshoring. She is associated with mass, taxpayer-subsidized immigration and an identity politics mentality that is 1) not making this country safer and 2) leading to a lot of underemployment and job displacement of citizens. The enormous fortune that Hillary and Billl made off of global contacts made in office reinforced the idea that those Nineties Era, middle-class-killing policies were enacted mostly to pad the pockets of politicians, like Bill and Hillary Clinton. That is why everything Hillary said sounded hollow, even when she -- the big hear-me-roar feminist -- brought up her grandchildren a million times, rather than addressing issues that are tanking the U.S. middle class. She could not do that with any credibility because of supporting the policies that tanked it over the decades.

Lumberjack's picture

I was shocked that Salon, a left/progressive venue just published this. We all can agree we dodged a pretty serious bullet.

Give Me Some Truth's picture

The entire campaign she had like two press conferences. I think each one was 10 minutes long. Maybe she should have had just one?  No, zero.

BTW - Why didn't she give a concession speech and speak to her supporters after the poll results were in? We never have learned what really happened and why she couldn't give a 15-minute talk.

And our great press corps never asked.


Ol Man's picture

It's only a paper moon.....

rejected's picture

That's the reason for their existance. Don't be shocked. They sure as hell don't hide it!

buzzsaw99's picture

turnover just gets you front run. whatever you're in to buy and hold (or die a death of a thousand cuts). plus, with central bankers buying everything even "prudent" short positions get murdered. buy and hold is the logical response.

Logic is little tweeting bird... [/Mr. Spock]

SpanishGoop's picture

Nobody owns anything unless you are prepared to defend it with your life, gunpowder and lead.

A well, back to the good old days.



GodHelpAmerica's picture

Not sure why anyone would be planning for deflation with these central bank trends. This is Zimbabwe, Weinmer Germany type stuff here...own real assets...maybe there's one final deflationary gasp, but ultimately this gets resolved through major declines in the currencies...

It's different this time; but only in nominal terms...

In real terms, which is where it really matters, the crash will be the same as it ever was...

JackT's picture

The tide goes out before the tsunami hits.

GodHelpAmerica's picture

Unless you are a fantastic trader or have and inside (illegitimate look) it's not worth trying to play. Have fun. Chances are you will miss it both ways and I'd rather be years early than a minute late...

Long real assets....

True Contrarian's picture

Et voila, soupe la grenouille. Parfait pour le Banquiers.