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2020-

2020-03-13 a
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,

Katie Martin, Financial Times:

The equity price falls are striking. But investors are even more unnerved by the fact that the plumbing behind markets started to creak this week. In particular, the most important market in the world — US government bonds — appeared to be short-circuiting. Every experienced trader will tell you that Treasuries “should” be rallying while stock markets slide, providing a hedge to those who want one. But they are not, in part because of banks’ unwillingness to act as go-betweens.

“To me, it feels worse than 2008, more like the LTCM crisis,” one hedge fund manager said. The “total lack of liquidity in so-called liquid products” means some funds will probably not survive this crisis, he added. That, plus the stress in US high-yield bonds, could topple more dominoes. If funds fail, they will have to sell more assets. If companies fail, banks and funds will be on the hook. Markets would be forced to keep pricing in more and more pain.

Already, panic is feeding off itself. “The market has been jolted to the point of breaking, and textbook common sense seems to no longer apply,” Nomura’s Masanari Takada wrote. “Given the extreme uncertainty over what will happen, investors’ own insecurities could cause a worst-case black swan scenario to actually unfold.”

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