The Financial Stability Board (FSB) has published on 20/10/2022 a report on liquidity in core government bond markets.
Changes in core government bond markets over the past decade may have made them more prone to liquidity imbalances in times of stress. Unlike the typical case of being a ‘safe haven’ in periods of stress, government bond markets experienced a ‘dash for cash’ as investors scrambled to sell highly liquid assets to fulfil their cash needs. Central bank interventions were effective in alleviating market strains, but they are not without cost and should not substitute for the obligation of market participants to manage their own risks appropriately.
The report outlines policies to consider for enhancing the resilience of core government bond markets, including measures to:
- mitigate unexpected and significant spikes in liquidity demand by non-bank investors.
- enhance the resilience of liquidity supply in stress.
- enhance market oversight, risk monitoring and the preparedness of authorities and market participants.
- IOSCO published a discussion paper in April 2022 on drivers of liquidity in corporate bond markets during the COVID-19 stresses.