A recent attempted sale of over one hundred auction rate securities failed to find any buyers. Dealbreaker explains why this seemingly esoteric event could have nasty repercussions.
In the private wealth group, theyâ€™ve been treating these things as if they were cash. Clients were funneled into the bonds and told they were the most liquid investment short of actual cash. But yesterday the bond auctions failed in a dramatic fashion, leaving many investors in illiquid positions.
They can’t pull their money out until buyers appear. Right now, there are none.
This… is already having repercussions in the broader marketplace, including the stock market. Now that they are locked into the bonds, they are effectively frozen out of the stock market.
Or from buying a house. Or whatever. Imagine you had most of your cash in t-bills because they were supposed to be super-safe then were told, sorry, your money is stuck there because no one will buy them from you.
If this doesnâ€™t turn around soon, there could be major financial consequences.
There’s there’s the bond reinsurers who have 4-5 days left to re-capitalize or else they get sliced and diced. If this happens, all manner of debt will get downgraded with no doubt severe impacts upon the general markets.