Last week Mark Carney revealed an extraordinary statistic. According to the governor of the Bank of England, it now takes seven times as long for investors to liquidate bond portfolios as in 2008.
The reason? Eight years ago investment banks and brokers held such large inventories of bonds and other assets that they were happy to act as market makers, standing ready to buy or sell when investors wanted to trade. But, since the crisis, banks have slashed these inventories by about 70 per cent because of tighter regulations and a new climate of risk aversion. They have also cut the size of bond deals. This makes it much harder for sellers of bonds to find buyers, particularly if everyone wants to sell at the same time.
The “exits” for trades, to use banking jargon, are crowded. And that means that while the markets might seem placid today, particularly given the easing announced by the Japanese and European central banks, this calm could come to a halt if investors try to sell en masse.