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Stephan Meschenmoser Benedicte Gravrand, Opalesque Geneva: Stephan Meschenmoser is a Managing Director and a member of the Strategy and Market Views function of the Client Solutions group within BlackRock Solutions. In a recent interview with Sona Blessing on Opalesque Radio, he shares insights on the role of liquidity and market volatility.
The cost of regret
Liquidity and illiquidity have been some of the major issues in the main financial markets since 2007, he says. "It is not liquidity or illiquidity we are afraid of per se, it is the cost associated with illiquidity. You could say it is the cost of regret. If I make a decision and I want to reverse it immediately, the costs associated with it increase massively for various reasons."
On the supply side, there is illiquidity especially in the bond and corporate bond markets. Banks are more heavily regulated (as Basel III is kicking in) and are reducing their inventory. "So when you try to buy or sell bonds in the markets, you don’t get a quote in the size you want to order and that affects the prices and the costs," he notes. At the same time, banks are reducing their trading activity in repo markets; the latter are very important for the liquidity of markets, they’re the oil in the bond markets, and many banks used their repo desks massivel...................... To view our full article Click here
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