For axyoxe worried that the fixed income market is broken, co-founder Bill Gross's September exit from Pacific Investment Management Co. offered no solace. By month's end bond giant PIMCO had suffered $25.5 billion in net outflows, according to Chicago-based Morningstar.Those assets poured into an increasingly illiquid market as rules that banks must hold extra capital have pushed broker-dealers to slash bond inventories. To make matters worse, investors in corporate credit still shun electronic trading for the largest and most important trades. Many pick up the phone and place orders on a principal basis, which requires dealers to put up now-scarce capital. Historically low interest rates and the continued appetite for bond funds help keep managers in denial. Dealers are good at distributing new issues to buyers, but they have yet to be tested when the flow goes the other way.
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