Liquidity has declined from 2010 levels, especially in the Treasury market, according to the Federal Reserve's June 2015 Senior Credit Officer Opinion Survey on Dealer Financing Terms, released Wednesday.
Residential mortgage-backed securities and corporate bonds were also less liquid, according to the report, which pointed to regulation and internal risk management for the decline in liquidity.
More than 80% of respondents said "current liquidity and market functioning in secondary markets for nominal Treasury securities had deteriorated relative to the second quarter of 2010. A net fraction of one-half reported that conditions had deteriorated in secondary markets for agency RMBS, while two-fifths of dealers pointed to a deterioration in secondary markets for corporate bonds," according to the Fed. "Respondents reporting a deterioration primarily pointed to decreased willingness on the part of securities dealers to provide balance sheet resources for market-making purposes as a result of regulatory changes as well as changes in internal risk-management practices."
The survey showed "little change" to "credit terms applicable to most classes of counterparties."
The survey also indicated more "resources and attention devoted to the management of concentrated exposures to central counterparties and other financial utilities over the past three months."
Leverage by counterparties was also reported to be unchanged.
About one-fifth of dealers said they saw more "demand for funding of equities and almost one-third noted an increase in demand for funding of non-agency residential mortgage-backed securities (RMBS)."
