Heightened bond liquidity risk is the new normal, BBVA Compass economists say

- Fed normalization will not eliminate existing limitations on liquidity

- Bank's economist will discuss liquidity dynamics on Thursday web conference and call

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Sep 09, 2015, 01:30 ET

HOUSTON, Sept. 9, 2015 /PRNewswire/ -- With investors concerned about weakened liquidity across the financial markets amid the tumult on Wall Street and a looming rate hike, BBVA Compass economists say in a new report that post-crisis regulatory environment and technological advancements have reshuffled liquidity risks from banks to large investors.

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"The shifting of liquidity risk from banks to large investors has, as intended, lowered the systemic risk of regulated financial institutions but increased bond market volatility," writes Shushanik Papanyan, BBVA Compass senior economist. "New liquidity dynamics such as a new regulatory environment and high-frequency electronic trading have created a new class of dominant players in the bond market, changed the way bonds are traded and how money is allocated."

Businesses and governments turn to bond markets to raise debt capital through corporate, treasury and government bonds. Changes in the interest rate environment may affect bond liquidity, but the effect is only temporary and the Fed's policy normalization will not reduce the magnitude of existing issues, the bank's economists say in the report.

The economists point to the original so-called "taper-tantrum" in May-June 2013, when the markets were not prepared for the Fed's announcement that it would start tapering its bond-buying stimulus program, where it snapped up $85 billion worth monthly.

"Under current liquidity conditions, massive sell-off episodes such as the 'taper-tantrum' should be considered the new normal when market expectations are misaligned with Fed announcements," said Papanyan.

To learn more about heightened liquidity risk in the financial markets, please join the bank's economists for an informative web conference and call on Thursday (Sept. 10, 2015) at 10 a.m. CDT. A Q&A session with Papanyan will immediately follow the call.

To access the online meeting, click here. If asked, enter the meeting number 716 019 105 and password bbva1234. For the conference call, dial +1-877-768-4036 or +1-972-932-2100 and enter access code 716 019 105. A question-and-answer session will follow the presentation.

About BBVA Group
BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes. More information about the BBVA Group can be found at www.bbva.com.

About BBVA Compass
BBVA Compass is a Sunbelt-based financial institution that operates 672 branches, including 341 in Texas, 89 in Alabama, 77 in Arizona, 62 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico, and commercial and private client offices throughout the U.S. BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (5th). BBVA Compass has been recognized as one of the leading small business lenders by the Small Business Administration, and its mobile app recently earned the Mobile Banking Leader in Functionality Award for the second consecutive year from Javelin Strategy & Research. Additional information about BBVA Compass can be found at www.bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com.