No End in Sight to Credit Market Roller Coaster

For investors trying to make sense of recent extreme moves in the global credit market, bad news: The roller coaster may go on. The long-feared liquidity menace is well and truly here, and it’s overshadowing more prosaic factors like low default rates and corporate earnings when turbulence in the $13 trillion market erupts, according to new research from UBS Group AG, Bloomberg News reported. “Dizzying” moves of late have been driven by rapidly rising and falling liquidity, strategists at the bank argued this week. These are symptoms of a herd mentality that’s exacerbating every selloff and rally, and the problem is particularly acute for junk-rated debt, they said. A glance at bid-ask spreads -- that’s the difference between prices dealers quote to buy and sell -- helps explain the thinking. It’s one way to measure liquidity conditions, which are notoriously difficult to track. Read more

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