Whenever we are on the road speaking to advisors or to clients we always get the question, and rightfully so, "What is your biggest fear?” Well over the last year and a half I have been saying, “the bond market”. It doesn't matter who you speak to on our team, we all feel it is a big concern. The unsustainable interest rate environment, created by unprecedented levels of government intervention and anemic global growth, has forced investors to take on significant amounts of risk to achieve what were once very safe, risk adjusted, fixed-income returns.
One of the big changes over the last five years has been the drying up of liquidity in the bond market. A big driver of this has been a push by financial institutions and counterparties to hold less inventory and shrink their balance sheets. This is evidenced by wider bid/offer spreads across almost every area of corporate debt. I wanted to share a link to an interesting piece in the Financial Times that delves further into this issue.
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