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U.S. corporate bond markets increasingly face liquidity hurdles when investors shift from risk assets in periods of market stress, Bank of America analysts say in a note. The liquidity problems are arising mainly because the credit market has expanded faster than in dealer inventory and faster than the underlying economy, BofA says. "It is not only market uncertainty but more importantly the stock of assets out there that is increasing the risk of drawdowns and creating a more challenging liquidity environment in the bond market," the analysts say. (Miriam Mukuru, [email protected])
Economists say the Bank of Canada has much work to do to normalize rate policy, with inflation continuing to decelerate, to 2.5% in July. National Bank Financial says monetary policy remains one of the most restrictive in a generation, even after two rate cuts, based on an adjusted real policy rate--defined as the BOC's overnight rate minus CPI excluding mortgage costs. The BOC, NBF argues, "is barely keeping pace with disinflation," and warns of more collateral damage to the economy and labor market. David Rosenberg, head of Rosenberg Research, says in his daily newsletter the BOC needs to roll back most of the rate cuts it delivered in 2022 and 2023 to bring the policy rate in line with CPI. (Paul Vieira, [email protected])
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