Since 2007, US Treasury bonds outstanding have increased by 176.9% to $12.505 trillion. Shockingly, despite the total size of the US Treasury market nearly tripling in seven years – the daily trading volume of US Treasuries has declined by 11.4% from $570.2 billion in 2007 to just $505.4 billion today. In 2007, the US Treasury market had daily turnover of 12.63%, but it has since declined to a record low of 4.04%.
With US Treasury yields at record lows, many investors have turned to corporate bonds – especially “junk” corporate bonds, in an attempt to seek higher yields. Since 2007, US corporate bonds outstanding have increased by 49.4% to $7.84 trillion.
In 2007, the primary dealers responsible for corporate bond market-making held US corporate bond inventories of $211.98 billion, which was equal to 4.04% of the corporate bond market. Since then, as the corporate bond market expanded in size by 49.4% – their corporate bond inventories have plummeted by 71.8% to $59.8 billion. Currently, primary dealer inventories of corporate bonds are equal to just 0.76% of the $7.84 trillion corporate bond market!
Soon, as bond yields begin to rapidly rise as US price inflation spirals out of control – investors who own US Treasuries and US corporate bonds will rush for the exits before their profits evaporate. Unfortunately, there may not be any buyers for their US dollar-denominated bonds – and the US bond market could face an unprecedented liquidity crisis.
Spread the word about the upcoming bond market liquidity crisis