What is the best single, overall proxy measure for liquidity in financial markets? If markets started to freeze, you'd see it there? Or, conversely, you could tell from the measure that markets were starting to freeze.
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“But given this rationale, shouldn’t you do the same on a 10 year T bill?” Yes, but so much of the world hangs of the 10 year T bill that I’m not positive in all futures where a thumb gets put on that scale the thumb should be called a liquidity problem.
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There are lots of generally correct answers, the main challenge of the question is what to use as someone not paying for access to the data financial professionals are used to having.... and which market you are most interested in.
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I'm an MBS trader and I think this is close but not quite right. IMO you'd want to look at cash vs synthetic basis in multiple sectors. Cash Treasuries vs futures in this era, swap spreads and CDS basis pre crisis, TED spread back in 80s, etc
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When balance sheet (and risk intermdiating ability) is plentiful, cash assets and synthetic assets are comparably priced. When sheet gets tight, synthetic trades at a premium to cash
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