Thread by @gbponz

True, but it doesn't capture one thing: fixed income investors have been facing a bleak future for over a decade, since 2008, to be precise. (/) @jeuasommenulle @nglinsman @Halsrethink @amlivemon @DiMartinoBooth @bondstrategist

https://twitter.com/Banqkys/status/1365748596998606848

And the old man knows, because as the most perceptive of you have realised, he did NOT name banks within those investors. Because in 2008, the pick was between "banks " and investors. (/)

It's yesterday to me since I am almost 60, but people may not know how dire the situation was, especially for bond investors. Equities were smashed to a pulp. An equivalent disaster went on in bonds... with a twist.(/)

Since I advise private clients, especially on fixed income, I had to explain the bond quirk many times: equities "trade" , bonds "mature". In Equities, you "forecast", in bonds you calculate the yield to maturity. (/)

Hence two things:
1. A "passive" bond portfolio becomes liquidity over time, and passive means "untouched". Coupons and principal flow until everything turns to cash, or defaults;
2. Given 1. , a fixed coupon bond portfolio performance can be ballparked in advance . (/)

The corollary is not as much that one is riskier than the other, as much as one portfolio can survive illiquidity, the bond one, and the other is not as robust. But ... bonds did not have a " Market", they had market makers (/)

In the aftermath of Lehman, market makers liquidity dried up. And here I have to back up a little to a white lie. To be eligible for placement in funds and vehicles, bonds have to have a compliant prospectus, and.... be LISTED on an exchange.(/)

In five years as a balanced fund manager I never traded a bond on the stock exchange, which for the vast majority of non government bonds is Luxembourg. There was always a broker involved, with varying bid-ask spreads. In 2008 those prices parted ways.(/)

It was not unlikely to see a bond priced as "60 - 70", meaning that you priced and could sell what you owned at 60, but you paid 70 on any purchase. That's an yearly 2% yield difference in yield to maturity.(/)

So what could be done?
The "free markets and digital innovation!" Solution would have been to fund and allow a system where EVERY investor in Europe, retail or not, would be allowed/encouraged/forced to enter limit orders on the listing venue. (/)

In that case, final investors would have provided liquidity/information flow to each other, and then high yield would have mobilized cash....away from bank intermediaries and equities?(/)

Plus, you see the problem, which is present now in even bigger proportion: there is a size bias here. You are big enough to be listed, you don't have a liquidity crunch, you have a cost of money problem. Under #QE BIG players have neither.(/)

Of course, that was not done and governments threw money at banks. After that, through no ill will but lack of vision, markets have fragmented progressively in banks favour. Final investors, as in "the fall guys", are left in the cold.

One additional note: I realized that I am approaching 4.000 people who follow me. I would be lying if I said I do not appreciate it, and while I try simply to add something without looking at that number, this thread was meant to be my thanks.