THE BANK of England’s financial policy committee (FPC) is set to reveal the results of a six month investigation into bond markets this week amid fears of diminishing liquidity in the sector.
The FPC will meet on Wednesday to discuss its findings as the Bank seeks to limit the effects of potential financial shocks linked to bond market volatility.
Fund managers have expressed concern at a lack of liquidity in government and corporate bonds after a large number of funds invested heavily in the $76 trillion (£50 trillion) market.
Simultaneously, investment banks have fled, with experts warning of more fluctuations as a result.
In April, the International Monetary Fund also warned regulators to brace for global “liquidity shock”.
It said lower liquidity combined with high market leverage increases “the risk of minor shocks being propagated and amplified into sharp price corrections”.
The FPC was created in order to assess risks in the financial system and it has been reported that policy could be rejigged off the back of the investigation in order to cater for various scenarios. The Bank is also said to be gearing up to warn on high household indebtedness this week, with governor Mark Carney expected to address high loan to value mortgages.