The flood of easy money from the world's central banks may be masking the risk that bond markets may be starved for liquidity when interest rates increase to normal levels, the International Monetary Fund (IMF) said.
Liquidity is tightening as banks become less willing to serve as market-makers amid tougher regulations and efforts by the financial industry to reduce risk, the IMF said in a study released on Tuesday.
"Structural changes, such as reductions in market-making, appear to have reduced the level and resilience of market liquidity," although not at an alarming pace, the Washington-based IMF said.
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