It is no secret that bond market liquidity is horrendous: this is a topic we have been discussing since early 2013 [8], and which gained major prominence most recently when Denmark’s biggest pension fund, ATP, said "the burden of regulatory restrictions designed to rein in risky trades has now led it to abandon its reliance on the longest-dated bonds." As Bloomberg reported, "the fund, based north of Copenhagen, said earlier this week it was shortening interest rate guarantees to savers amid a lack of liquid assets with maturities of 30 years and longer." As a result policy holders in the pension fund will now have the rates paid on their savings guaranteed for 15 years at a time, versus lifelong guarantees.
ATP warned that the change will help protect pensioners’ purchasing power.
And, as the TBAC explained one year ago [9], pensioners (first in Denmark, soon everywhere else) have the Fed and other monetizing central banks to thank for losing their "purchasing power" as a result of the central banks' sequestration of high quality collateral, i.e. bonds with duration to record levels, and the resulting collapse in bond market liquidity.
Well, things just got worse today, when as the following chart courtesy of Nanex showed [10], liquidity in the ZB future took a step function lower on the Russian news. Expect even further contraction in liquidity in the coming weeks and months, which in turn will mean that soon the world's "deepest" market may have all the liquidity of CYNK... and all the volatility as well.
[11]
