And finally, here's what Cormac Mullen is interested in this morning
It is said that liquidity is a coward, it disappears at the first sign of trouble. What happened in Treasuries last week was one example of this, as trouble in one small corner of the bond market helped spark a liquidity crisis in another. As coronavirus cases spiked around the world, investors rushed to the safety of Treasuries. But even the Treasury market has a hierarchy of liquidity so they rushed to futures first rather than cash bonds, driving spreads between the two much wider. That in turn disrupted a normally sleepy trade popular with leveraged investors known as the cash-futures basis - that profited from the typically small differences between the two. Caught on the hop, the speculators were forced to close their positions, leading to further dislocations in the spread. Larger funds saw an opportunity to invest as spreads became more attractive, and did so with cash they would have usually allocated to the commercial paper market. The shortage of money in that market then exacerbated the stress on cash-strapped companies looking for funding, under pressure to deal with the financial impact of the coronavirus outbreak. All this is just one overly-simplified example of the various dominos that were falling in financial markets last week that lead to an unprecedented $5 trillion Federal Reserve promise to calm the waters.
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