– For The First Time Ever, Corporate Bond Inventories Turn Negative – What This Means:
As we noted previously, for the first time ever, primary dealers’ corporate bond inventories have turned unprecedentedly negative. While in the short-term Goldman believes this inventory drawdown is probably a by-product of strong customer demand, they are far more cautious longer-term, warning that the “usual suspects” are not sufficient to account for the striking magnitude of inventory declines… and are increasingly of the view that “the tide is going out” on corporate bond market liquidity implying wider spreads and thus higher costs of funding to compensate for the reduction is risk-taking capacity.
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