A stable, well-functioning financial market for allA stable, well-functioning financial market for allFI Analysis 8: Vulnerability indicators for liquidity
The vulnerability indicators FI identifies in this analysis show a slightly elevated level of vulnerability for liquidity. Several indicators contribute to this.
In this FI Analysis, we identify a number of quantitative indicators that capture vulnerabilities relevant for liquidity in the fixed income and currency markets. Along the lines of Finansinspektionen's (FI) earlier work with indicators, we focus on vulnerabilities and therefore include only indicators that are more structural in nature.
The indicators show a slightly elevated level of vulnerability for liquidity. Several indicators contribute to this, for example the rising costs for market makers as well as the greater use of Swedish National Debt Office's repo facility. The price of currency swaps is at a historically high level, which in a crisis scenario could have a negative effect on financing liquidity.
Well-functioning fixed income and currency markets are important for the stability of the financial system. These markets are needed in order for financial firms to be able to make their payments and protect themselves from different types of financial risks. The transactions that are conducted often contain a time-critical element, which therefore makes it important for financial and non-financial firms to complete these transactions on time. One key factor for being able to complete time-critical transactions is that markets are sufficiently liquid.
