Adjustments will need to be made by investors to a rapidly evolving market where it is becoming increasingly difficult to link purchases from the source to the end buyer according to Michael Lillard, asset manager at Prudential Financial.
“There has been a new wave of volatility” said Lillard, who manages over $550 billion at the US financial giant, in a press conference Thursday. “A symptom has been a marked decrease in liquidity as a result of a beast that is kind of reinventing itself as it adapts. It’s a huge challenge keeping up with the changes in the actual structure of the market.”
Some of the bigger Wall Street houses have been backing off from affected markets due to a higher level of attention from regulators, creating a vacuum for counterparties. This can push investors to either make do with below average prices to exit positions, or to keep hold of bonds longer than they would have before.
Other experts have commented that there are opportunities for traders with the foresight to act quickly and decisively in response to market fluctuations. James Summers, Global Co-Chief Operating Officer of Equities at Acom Alliance said in an interview recently, “The trick these days is to keep your eye trained very carefully on dislocations in the market. There are subtle ups and downs in liquidity; you need to be sensitive to those changes.”
Late last year Lillard commented that investors should select bets they intend to be faithful to in the long term, and his latest remarks falls in line with that sentiment. Some of the safer options he recommended recently were U.S. securities and high yield credit both home and abroad. Sovereign debt in established markets, he said, was not a wise choice.
Indicators coming from the NY Federal Reserve, and especially from its president William Dudley, show there is an impending rate hike, on top of the one witnessed in December.
‘Waiting for the moment’
Lillard added “The consensus is that the Fed will wait patiently for the right moment to adjust its rates. That moment will most likely come when there is a satisfactory run of economic reports and a more settled market.”