BIX ARTICLE
QT Will Soon Begin to Bite With 10% Hit to Liquidity, BNP Warns
Jun 12, 2023
|
3 min read
Featured Posts
SRI Sukuk: The Journey Towards Sustainable and Responsible Investment
Jul 23, 2020
|
5 min read
Securities Commission's Capital Market Masterplan 3 (CMP3)
Sep 21, 2021
|
2 min read
What If We Allowed Retail Investors to Directly Invest in Malaysia’s Government Bond?
Aug 24, 2021
|
8 min read
Islamic Bonds Come Under Microscope After Garuda Indonesia Default
Aug 19, 2021
|
8 min read
(June 9): The unwinding of balance sheets by major central banks will soon begin to bite, causing a massive siphoning of liquidity from markets, hitting risk assets while driving bond yields and the dollar higher, according to BNP Paribas SA.
A 10% contraction in global liquidity would correspond to a 4% decline in stocks, an appreciation of at least 2% for the greenback and an initial jump of over 10 basis points for Treasury 10-year yields, the bank’s strategists said in a note.
Alongside rate-hiking, the Federal Reserve has been engaged in quantitative tightening (QT) for about a year and the European Central Bank stopped reinvesting the full proceeds of its asset purchases a few months ago. But a mix of factors, including the fact that the Treasury had to slash its cash buffer before Washington pushed through a debt-limit suspension, have prevented the typical drain of liquidity.
That’s all changing now, the bank’s strategists said.
These types of contractions impact assets with a lag, the pain of the lost liquidity to build over time — historically taking about 10 weeks to fully work through markets, BNP’s global head of macro strategy Sam Lynton-Brown and his colleagues wrote.
They project liquidity to fall as much a 9% by the end of September and up to 11% to wrap up the year. In a more extreme case, a contraction of global liquidity as large as 16% is likely, according to them.
“Global liquidity is an important driver of various assets,” Lynton-Brown said. “It therefore also impacts financial and monetary conditions. Rising global liquidity is likely one of the key reasons rate hikes in this cycle have had a smaller than had been widely anticipated impact on the economy.”
But “the wind is about to turn,” the BNP team said. “A tightening of liquidity may have a large impact on assets.”
Initially, government debt yields would rise, with the higher borrowing costs hitting other assets, BNP’s analysis shows. Later on, Treasury yields would likely fall amid haven-related demand.
Source: QT will soon begin to bite with 10% hit to liquidity, BNP warns (2023, 09 June). theedgemarkets.com. Retrieved from https://theedgemalaysia.com/node/670502
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile.
The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
YOU MAY ALSO LIKE
ARTICLE
Oct 22, 2024
|
3 min read
ARTICLE
Aug 27, 2024
|
5 min read
ARTICLE
Aug 22, 2024
|
3 min read
ARTICLE
Aug 19, 2024
|
7 min read