A confluence of events have begun to stress credit markets and drive nervous investors to the safety of government bonds, no matter what the returns. YieldReport wrote last year about the impact on market liquidity of crowded one-way trades and the reduction in proprietary trading risks being taken by global investment banks. Many of those forecasts are now coming to fruition.
Low commodity and oil prices have seen some sovereign wealth funds begin to liquidate large amounts of assets and China has been selling hundreds of billions of dollars’ worth of assets to prop up a falling yuan.
The global experiment with ultra-loose monetary policy has not generated the levels of economic growth and inflation expected and with the Bank of Japan the latest to implement a negative interest rate regime, fearful investors are selling what equities they can.