Data Shows Liquidity in The Markets Is Deteriorating

Liquidity in markets
Goldman Sachs Investment Research

New data shows there is less liquidity in the markets due to high volatility, especially in the bonds market.

Earlier we saw Citadel could default on Russian bonds due to both sanctions and not enough liquidity in the markets to meet bondholder demands.

The market for Treasury securities is the most liquid in the world, however, liquidity in the markets has rapidly deteriorated to 2020 levels.

Will this cause short sellers to throw in the towel?

Let’s discuss it.

Welcome to – today I’m going over a piece of information that ties up liquidity in the markets with hedge funds such as Citadel. Could this start the liquidation process?

Let’s dive right into it!

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Deteriorating Liquidity in the markets ignites sell-offs

Liquidity chart
Liquidity in the markets

According to the chart above, the current treasury market is under serious stress.

This means the likelihood of Citadel defaulting on its Russian bonds is relatively high.

While it may not bring the entire hedge fund down to its knees, it will certainly create significant losses.

Without liquidity, Citadel will either need to take private funding again or begin to liquidate certain assets.

Could this be the catalyst to force a short squeeze in AMC Entertainment?

It certainly can be if the hedge fund decides to close their position in the movie theatre chain company.

After all, AMC Entertainment has now proven to be a growing company.

The theater chain has progressed every quarter since 2020 and now has a positive EBITDA.

Shorting AMC no longer makes any fundamental sense if short sellers are still betting on the company to file bankruptcy.

And with the company now invested in silver and gold, it could be a great company for Citadel to close their positions in before prices begin to surge again.

BofA says there’s been a ‘record outflow’ from hedge fund clients

bank of America

Bank of America said there has been a record outflow in the past weeks from stocks from its hedge fund clients.

In other words, hedge funds have been selling the entire market (shocker).

According to BofA, retail investors are actually balancing the markets due to above average buying pressure.

Citadel happens to be one of the bank’s clients; the bank manages the hedge fund’s assets through its clearing house ‘BAML‘.

If liquidity in the markets is running dry, we could see a surge in short covering to meet margin requirements and customer demands.

“Retail clients have been more aggressive buyers of this dip than other 10% corrections post-crisis, potentially on fear of missing out on what has generally been a successful strategy post-crisis,” Bank of America said.

According to the industry, most market participants don’t like the idea of “dumb money” buying while “smart money” is selling.

Could this idea of hedge funds selling trigger clients to take their money out?

What do you think?

Leave your thoughts below.

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1 Comment

  1. Frank Nez

    Let’s start a discussion!

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