Livewire Exclusive – A dangerous consensus

At the height of the financial crisis, credit markets seized up and liquidity disappeared. In the aftermath of Lehman’s bankruptcy, this caused huge headaches for investors, institutions, and regulators. It may surprise you to learn then, that turnover in these markets is lower today than it was at the nadir of the crisis. So, what’s going on?

Gopi Karunakaran, Portfolio Manager at Ardea Investment Management, explains that banks have withdrawn from corporate bond markets due to regulatory changes, which has created a significant unseen risk. “As yields have gone lower, defensive fixed income portfolios have had to buy more and more credit in order to keep returns up. I think that is a very dangerous consensus trade.”

In the full video, he explains what this means for the US$560 billion in fixed income ETFs around the world.

To watch the Livewire video click here.