Get Used to Selloffs, Central Bankers Say as They Fret about the Terrifying Moment When Liquidity...

[marmar]

via Naked Capitalism:


Wolf Richter: Get Used to Selloffs, Central Bankers Say as They Fret about the Terrifying Moment When Liquidity Evaporates
Posted on June 5, 2015 by Yves Smith

Yves here. The financial press has traders blaming regulations for recent bond market volatility. While banks have decided to reduce trading inventories, it’s not hard to imagine that the much bigger perp is the Fed’s regular threats to end ZIRP as soon as they possibly can. Complaints about liquidity translate as “I can’t sell as a price I like.” Well, who is going to want to go any longer in bonds right now with the Fed itching to hand you losses?

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

Axel Weber, president of the Bundesbank and member of the ECB’s Governing Council until he quit both in 2011 to protest the ECB’s bond purchases, quickly landed a new gig: chairman of UBS. WHIRR went the revolving door. From this perch, he warned in 2012 that the easy-money policies and the expansion of central-bank balance sheets would lead to “new turmoil in the financial markets.” Now that the turmoil has arrived, he’s at it again.

“Volatility and repricing” – a euphemism for losses – are “part of getting back to normal,” he told NBC. We should get used to it, he said, echoing what ECB President Mario Draghi had said a couple of days ago. So no big deal. However, he was fretting “about the liquidity in the market, in particular under stress situations.”

Despite unleashing a deafening round of QE on the European markets, the ECB has watched helplessly as government bonds have done the opposite of what they should have done: Prices have plunged, and yields have spiked. The German 10-year yield soared in seven weeks from 0.05% to over 1% on Thursday, before settling down a bit. And it wasn’t even a “stress situation.”

US Treasuries have sold off sharply as well since the beginning of February, with the 10-year yield jumping from 1.65% to 2.31%, the worst selloff since the taper tantrum in 2013.

Now one word is on the official panic list: “liquidity.” They’re thinking about the terrifying moment when it suddenly evaporates. .................(more)

http://www.nakedcapitalism.com/2015/06/wolf-richter-get-used-to-selloffs-central-bankers-say-as-they-fret-about-the-terrifying-moment-when-liquidity-evaporates.html

[Demeter]

1. Funny money and unequal rules--the House always wins

I do not know how it will come out, except badly. I expect pitchforks and torches will come in towards the end. It always has before.