Something Weird Is Happening on Wall Street, and Not Just the Stock Sell-Off
nytimes.com
nytimes.com
> Is the thing you are describing considered ‘the corporate credit crunch’?
Corporate paper (uninsured 30-day private notes) was frozen for a while in 2008/2009.
I don't think it is frozen now, though companies should have saved cash instead of doing share buybacks. (They reduce shares outstanding, hence boost EPS and share/option prices for execs AKA white collar crime.)
I bet Boeing wishes about now that it had kept some of that buyback cash.
Why hold a bond, if you have no idea when you’ll see cash/revenue again.
With an MM fund you're holding treasuries as collateral, which the fed will buy immediately for cash.
We're arguing different use cases.
Stocks and bonds both moving down could be indicative that some major players took on leverage using their stock holdings, and now that stock prices are plummeting they have to come up with the cash for their interest payments and are selling even bonds to do so. Best case scenario they all make their interest payments and take their loss on the chin. Worst case scenario some major player goes bankrupt and everyone has a collective freakout trying to figure out how this might push them over the edge as well.
And 2% losses due to inflation still beats a bear market.
Definitely not in most cases, if this were the case, nobody would invest in anything :)
Cash is a currency, and it's not a regular financial asset, so, if you need that, then cash can be good for you.
The parent is correct. Bond prices and stock prices moving together is not that weird at all and often happens during market disruptions.
WSJ ran a piece by James Mackintosh a few years back that pointed to the changing relationship between bond yields and stock prices as a potential sign of trouble: [1]
“A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa.”
“This summer [2016], the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007.”
“This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus, and last year’s brief bubble in German bunds.”
[1]: https://www.wsj.com/articles/time-to-worry-stocks-and-bonds-...
That said, the severe erosion of liquidity described by OP is real. An article from MarketWatch today goes into more detail: [2]
“During times of intense volatility like this week, dealers will demand a hefty premium to trade off-the-run Treasurys, as it could be difficult to take them onto their balance sheet and offload them again to a willing buyer.”
“On the other side, mutual funds and other investors promise their clients that they will be able to pull money in and out of funds on a day-to-day basis. These investors who have seen their off-the-run Treasurys holdings record double-digit gains in the span of a few weeks are now trying to sell their bonds and book profits, said market participants.”
“This mismatch in demand has led to a surge in the difference between the prices offered by buyers and the prices sellers are willing to accept, or the bid-ask spread, for off-the-run bonds.”
[2]: https://www.marketwatch.com/story/fierce-bond-market-swings-...
This is basically what Modern Portfolio Theory is about, though that is usually invoked in the context of returns. It seems to me that the idea would be the same, though.