The Endogeneity of Liquidity Risk in Leveraged Fixed-Income Systems Book

Leandro Wagner

MPRA Paper from University Library of Munich, Germany

Abstract: Liquidity is central to modern fixed-income markets, yet it is often treated too simply. Bonds are commonly described as liquid or illiquid, as though liquidity were a fixed quality built into the security itself. This book challenges that view. It argues that liquidity is not a permanent feature of a bond, but a fragile condition created by market structure, financing arrangements, collateral rules, dealer capacity, valuation practices, regulation, and investor behaviour. The Endogeneity of Liquidity Risk in Leveraged Fixed-Income Systems develops a clear theory of how liquidity is created inside the financial system and how it can disappear under stress. A bond may appear easy to sell in calm markets, financeable through repo, acceptable as collateral, and stable in daily valuation. Yet those qualities may depend on conditions that change quickly when volatility rises, funding tightens, or many investors try to exit at the same time.

Keywords: Liquidity; Risk; Endogeneity; Leveraged; Finance; Fixed-Income; Markets; Systemic; Risk; Market; Liquidity; Funding; Liquidity; Financial; Stability; Bond; Markets; Leverage; Cycles; Liquidity; Spirals; Asset; Fire; Sales; Margin; Constraints; Financial; Contagion; Macroprudential; Regulation; Market; Microstructure; Credit; Markets; Repo; Markets; Risk; Transmission; Stress; Dynamics; Fragility; Procyclicality; Capital; Markets; Dealer; Intermediation; Liquidity; Shocks (search for similar items in EconPapers)
JEL-codes: D0 H3 O1 (search for similar items in EconPapers)
Date: 2026-03-03
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