Liquidating 2016

The next chart shows average Amihud (2002) price impact coefficients for each bond group; these coefficients measure how returns change for a given unit of dollar volume.Thus, a higher price impact measure suggests that prices in the low- and high-return group move more per given unit of order flow, as proxied by the dollar volume measure.There are at least two reasons to think that the corporate bond market in aggregate could experience liquidity strains in such a scenario.First, a publicized risk event like FCF’s announced liquidation may raise expectations of redemptions at other funds.

Against that backdrop, a highly observable shock like FCF’s liquidation could lead to a broad-based repricing of risk and a subsequent need to hedge and reduce exposures, further increasing the demand for immediacy.The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets.The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region.

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The following table shows that the bonds with the worst returns on December 11, 2015, tended to (1) have higher spreads relative to Treasury securities, (2) have higher yields at issuance, and (3) be more likely to be high yield (HY).

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