Don’t get us wrong, we’re happy that the entire world has finally woken up to the fact that liquidity is rapidly disappearing from every corner of global capital markets. Indeed, the wholesale adoption of the illiquidity meme serves as a ringing endorsement of the arguments we’ve been making in these very pages for years.
And while we’ve grown accustomed to seeing tin foil hat conspiracy theories gradually metamorphose into undeniable conspiracy facts (much to the chagrin of the begrudging pundit echo chamber), the degree to which everyone from the mainstream financial news media to the C-suite is suddenly screaming about illiquid credit markets has surprised even us.
And while it’s not always clear that everyone talking about illiquid markets completely understands what it is they’re saying, they’ve undeniably picked up on the fact that somewhere deep inside the secondary market for govies and corporate credit, something sinister is amiss and they can’t afford to be the only ones not talking about it.
Having said all of that, one of the few people who, like us, began documenting the disappearance of liquidity long ago and who is generally quite adept when it comes to illustrating the problem is Citi’s Matt King, and for anyone still confused as to what exactly we mean when we discuss the admittedly amorphous concept of "liquidity", we present the following graphics from King's latest missive by way of explanation.
And here is what it looks like when liquidity dries up...