This Time Is Different, but It Will End the Same Way: Unrecognized Secular Changes in the Bond Market since the 2008 Crisis That May Precipitate the Next Crisis

50 Pages Posted: 17 May 2019

See all articles by Daniel Zwirn

Daniel Zwirn

Arena Investors, LP

Jim Kyung-Soo Liew

Johns Hopkins University - Carey Business School

Ajakh Ahmad

Johns Hopkins University - Carey Business School

Date Written: April 29, 2019

Abstract

The US bond market had over $42.39 trillion of outstanding debt at the end of the third quarter of 2018, eclipsing the US stock market’s approximately $30 trillion in market capitalization. The sheer size of the bond market provides ample opportunities, as well as risks, for institutional investors. Some of these risks escape investors’ radar because of the nature of fixed-income securities: low transparency, illiquidity, and over-the-counter (OTC) trading. In this paper, we present our concerns regarding five secular changes brought up by the over-regulation of the marketplace after the financial crisis of 2008 and investors’ persistent thirst for yield. Further, while painful lessons were gleaned after the punishing 2008 financial crisis, we present empirical evidence that suggests that many sectors, such as the auto loans and collateralized loan obligations, that were largely unscathed by this crisis may be at risk in the next downturn. This paper is based on original data sources and academic research. The authors are in continuing dialogue with other experts that may further the research, and welcome interested parties to get in contact.

Keywords: US bond market, institutional investors, credit markets, fixed-income, OTC trading, secular changes, over-regulations, auto loans, CLOs

JEL Classification: G01, G12, G18, G21, G23, G28

Suggested Citation

Zwirn, Daniel and Liew, Jim Kyung-Soo and Ahmad, Ajakh, This Time Is Different, but It Will End the Same Way: Unrecognized Secular Changes in the Bond Market since the 2008 Crisis That May Precipitate the Next Crisis (April 29, 2019). Available at SSRN: https://ssrn.com/abstract=3379979 or http://dx.doi.org/10.2139/ssrn.3379979

Daniel Zwirn

Arena Investors, LP ( email )

United States

Jim Kyung-Soo Liew (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Ajakh Ahmad

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
2,390
Abstract Views
6,096
rank
5,342
PlumX Metrics