Illiquid Tide

It happened one summer
It happened one time
It happened forever
For a short time
--The Motels

Increasingly on my personal radar as a potential factor driving the Next Time Down is growing illiquidity in bond markets. As noted here, both the Fed and high frequency trading black boxes have been taking supply off the market. That means that spreads between bid and ask will widen in the event of increasing selling pressure.

Some bond funds are trying to anticipate liquidity problems by arranging for lines of credit that would essentially pay redemptions with borrowed money than with proceeds from sold shares. That would provide only a temporary buffer, of course, given the size of fixed income markets.

Might it be that the key unrecognized factor in all of this central bank bond buying be that the trillion$ in bonds sitting on Fed et al balance sheets constitute vital market liquidity that has been rendered unusable for making markets in times of crisis?

position in SPX