Bill Gross warns on liquidity

In a recent interview, bond fund manager, Bill Gross, warned investors of a looming liquidity crunch. With many investors seeking to exit bond markets ahead of the Fed raising interest rates Gross warned that markets may not be able to handle such volume of orders during times of stress. With many of the world’s largest investment banks unable to act as market makers and thus provide liquidity, exiting a portfolio may become much more difficult than has been the case in the past. In particular, investors and markets have not been tested during a stretch of time when prices go down and policymakers’ hands are tied to perform their historical function of buyer of last resort. It’s then that liquidity will be tested.