Matt King_the more liquidity central banks add the less there is in markets 20150504

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1、CitiResearchMulti-Asset4May2015│22pagesGlobalTheliquidityparadoxThemoreliquiditycentralbanksadd,thelessthereisinmarketsWater,water,everywhere—Onmanymetrics,liquidityacrossmarketsseemsabundant.Bid-offersaretight,ifnotalwaysbacktopre-crisislevels.NotionaltradedMattKingvolumesincreditandratesh

2、avereachedall-timehighs.Theriseofe-tradingis+44-20-7986-3228helpingtomatchbuyersandsellersofsecuritiesmoreefficientlythaneverbefore.matt.king@citi.comNoranydroptodrink—Andyetalmosteveryinstitutionalinvestor,inalmosteverymarket,seemsworriedaboutliquidity.Evenifit’sheretoday,theyfearitwillbeg

3、onetomorrow.Theysaythate-tradingcontributesmuchvolume,butlittledepthforthosewhoneedtotradeinsize.Thegrowingfrequencyof“flashcrashes”and“airpockets”–oftenwithoutobviouscause–addsweighttotheirfears.Yes,streetregulationhasplayedarole—Themostfrequentlycitedexplanationisthatincreasedregulationha

4、sdrivenupthecostofbalancesheetandreducedthestreet’sappetiteforrisk,andhenceabilitytoactasawarehouserbetweenbuyersandsellers.Butsotoohavethecentralbanks—AndyetthisfailstoexplainwhyevenmarketslikeFXandequities,whichdonotconsumedealers’balancesheets,havebeensubjecttoproblems.Wearguethatinaddit

5、iontoregulations,centralbanks’distortionofmarketshasreducedtheheterogeneityoftheinvestorbase,forcingthemtobethe“samewayround”overthepastfouryearstoagreaterextentthaneverpreviously.Thiscreatesmarketswhichtrendstrongly,butarethenpronetosuddencorrections.Italsoleavesinvestorsmorefocusedoncentra

6、lbanksthaneverbefore–andisliabletomakeitimpossibleforthecentralbankstomakeasmoothexit.SeeAppendixA-1forAnalystCertification,ImportantDisclosuresandnon-USresearchanalystdisclosures.CitiResearchisadivisionofCitigroupGlobalMarketsInc.(the"Firm"),whichdoesandseekstodobusinesswithcompaniescovered

7、initsresearchreports.AsaPreparedfor:StephenniXieresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Certainp