We need to better understand the degree to which any changes in the nature of liquidity reflect the evolving structure of financial markets, changes in regulatory policy or other factors. With respect to regulatory policy, an important objective should be to achieve the best balance between the benefits of increased safety and soundness versus any costs imposed by these regulatory changes on market function and liquidity. In my remarks today, I will focus on market liquidity rather than funding liquidity, although I recognize that the two are related in important ways. I will examine market liquidity in two important fixed-income markets – the U.S. Treasury market and the U.S. corporate bond market. The Treasury and corporate bond markets provide a useful contrast in evaluating liquidity conditions as they differ with respect to the homogeneity of their securities, how their securities are traded and how regulatory changes may have affected the incentives of dealers to make markets in these securities. BIS central bankers’ speeches  1  The Treasury market is much more homogeneous and the average size of each issue is much larger. Trading volume and average trade sizes are much larger, and much of the trading activity for interdealer on-the-run securities is conducted electronically through the use of central limit order books (CLOB). In contrast, the corporate bond market is much more heterogeneous; there are many more distinct bonds available; and bond sizes are much smaller. As a result, corporate bond trading is fragmented across a large number of distinct outstanding bonds.
Russia’s unjustifiable invasion of Ukraine has brought supply security back to the top of the agenda for all major economies, most saliently for energy. And over the longer term, it is likely to accelerate the global transition to clean energy production as a way to increase climate and energy security. But such technologies are highly resource-intensive in their installation phase. Getting the global economy on a path to meet the Paris Agreement goals could see total mineral demand from clean energy technologies quadrupling by 2040. [7] This threatens a new era of competition for resources. Challenges for Europe in 2023 As this new global map takes shape, we enter 2023 facing three big challenges. The first challenge is to reconsider how we can best protect Europe’s critical interests in a fast-changing world. As an economy that is very open to trade and deeply integrated into global supply chains, we are vulnerable to geopolitical headwinds. For example, 35% of Europe’s manufacturing output is absorbed outside the EU, much more than for the United States or China. So, as the next chapter in the globalisation story is being written, we need to ensure that Europe is a leader, not just a follower. And as the French President and German Chancellor have recently argued, we have the capacity to do so. [8] Already now, Europe is the top trading partner for 80 countries, compared to just over 20 countries for the United States.