Small trades are triggering outsized price swings in the world’s biggest capital markets
email rounding up the latestTraders’ ability to seamlessly buy and sell stocks, bonds and other financial products on Wall Street has deteriorated sharply this year, adding fuel to the big swings on the world’s biggest and deepest capital markets.
The liquidity drought is also affecting vital markets that companies use to fund themselves and governments tap to finance public spending. Minutes from the US central bank’s latest policy meeting published last month showed that officials were concerned with the problems being created in the Treasury and commodities market by weak liquidity.
Banks have pulled back, in particular, from holding debt that is more vulnerable to rising interest rates, cutting their net positions in higher-quality bonds with a maturity of 10 years or longer into negative territory. Meanwhile, the health of the US government bond market — a benchmark for trillions of dollars in assets globally — is at its worst since the March 2020 market meltdown, according to a Bloomberg index.
And yet during that period, trading losses incurred by major US banks have been manageable and not threatened the overall financial system. It is a fact not lost on traders and investors, particularly after the fallout from the collapse of family office Archegos last year was broadly contained. Separate data from JPMorgan Chase underscore the fragility of the system. The bank measured how much of an order imbalance — the difference between buy and sell orders in S&P 500 e-mini futures — it took to move futures 1 per cent in a five minute period.
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