ETFs pose unappreciated financial risk, says fixed income manager
The low level of liquidity in fixed income markets makes ETFs vulnerable says Louis Gargour, managing partner and CIO of LNG Capital. “I think it’s a very unappreciated big financial risk,” he says, citing data that reveals proprietary trading capital in high yield in the US is now USD50 billion out of a market that’s worth just over USD4 trillion.
“Back in 2008, proprietary trading capital in high yield in the US was USD500 billion out of a USD2.2 trillion market,” Gargour says. “Banks now have little proprietary capital assigned to risk assets.”