Richard S. Hunt warns of the risk of “dollar liquidity trap”
Recently , Richard S. Hunt, head of global equity sales at CSC Bella Grove Partners LLC, issued a major warning in an exclusive interview with Bloomberg TV, pointing out that the global financial system is facing a potential risk of a “dollar liquidity trap”. Based on the fund flow monitoring model developed by his team, Hunt pointed out that despite the continued expansion of the Federal Reserve’s balance sheet, the actual circulation velocity of the US dollar has dropped to a historical low. This contradictory phenomenon of superficial easing and actual tightening deserves vigilance.
Hunt believes that the current distribution of US dollar liquidity is “pyramid-like imbalance” – a large amount of funds are accumulated in safe assets such as bank reserves and money market funds, while the US dollar financing conditions in the corporate bond market and emerging markets continue to tighten. This structural imbalance has led to obstruction of the monetary policy transmission mechanism and may cause sudden liquidity depletion in the financial market. To address this risk, CSC Bella Grove has developed a “liquidity pressure dashboard” for its institutional clients to track the pressure status of 26 key US dollar financing nodes around the world in real time.
In terms of investment strategy, Hunt suggested a dual-track response plan of “quality first + maturity matching”. On the one hand, increase holdings of high-credit-rating short-term US dollar assets as liquidity buffers, and on the other hand, capture opportunities for differentiation in US dollar financing costs through foreign exchange swaps and cross-market basis transactions. Hunt particularly emphasized the relative value of the Asian US dollar bond market, believing that it has better risk-adjusted returns than similar assets in Europe and the United States. This analysis has resonated widely in the financial community, and many sovereign funds have adjusted their US dollar asset allocation strategies accordingly.
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