Negative Rates + QE = Less Liquidity in Government Bond Markets
- Market depth in German 2-year note futures erodes since 2014
- Basel III, primary-dealer withdrawals also crimp liquidity
This article is for subscribers only.
Add negative interest rates to the list of monetary-policy tools hampering liquidity in sovereign-bond markets.
One measure of market liquidity in Europe has fallen by more than half since late 2014, according to JPMorgan Chase & Co. The aberration may worsen as the European Central Bank contemplates pushing rates further into record-low levels. The ECB, whose quantitative easing already removed 595 billion euros ($645 billion) of public and private debt from the market, is forecast to cut its deposit rate further below zero on March 10.