G20 watchdog to study bond market liquidity, asset managers

Thu Mar 26, 2015 3:04pm EDT
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By Paul Carrel and Frank Siebelt

FRANKFURT (Reuters) - The global financial system is safer but there is no room for complacency because of concerns about the international bond market, Financial Stability Board Chairman Mark Carney said on Thursday.

The FSB coordinates financial regulation for the Group of 20 leading economies (G20) and has been introducing tougher rules for banks and markets to plug gaps highlighted by the 2007-09 financial crisis.

Carney, who is also governor of the Bank of England, said the financial system was now safer, simpler and fairer but there were concerns about liquidity, or the ability of investors to sell bonds smoothly.

Policymakers worry that interest rate hikes could trigger a stampede among investors to dump bonds at the same time.

"Market adjustments to date have occurred without significant stress. However, the risk of a sharp and disorderly reversal remains, given the compressed credit and liquidity risk premia," Carney told a news conference after a meeting of the FSB.

The FSB said members were concerned about the growth of assets at funds that offer on-demand redemptions while investing in less liquid assets.

It has agreed to identify financial stability risks associated with market liquidity in fixed income markets and asset management activities and will make policy recommendations as necessary after initial findings are discussed in September.


Mark Carney, the governor of the Bank of England gives the bank's quarterly GDP and inflation forecasts at the Bank of England in London, February 12,. 2015. REUTERS/Pool/Antony Devlin