Money markets largely braved Cyprus’s bailout saga last week, but figures showing liquidity conditions are tightening suggest sentiment may not be as resilient the next time around.
Data from CrossBorder Capital, an independent financial firm that specialises in analysing global liquidity flows, shows the euro zone saw its biggest capital outflow in March since late 2011 – around the time the ECB injected liquidity into the financial system.
Financial institutions and governments took a net $175 billion worth of bonds and stocks, on an annualised basis, out of the euro zone in March – the biggest outflow since $201.4 billion in December 2011, according to the data.
Capital has been flowing out of the bloc since July 2011, the data showed.
Michael J Howell, CrossBorder Capital’s managing director, said:
Liquidity conditions are deteriorating fast and that’s backed up by the fact that if you look at net financial flows into the euro zone they are basically trending lower. The Cyprus situation clearly hasn’t helped.
He said the trend, along with a reduction in the size of the ECB’s balance sheet as banks repaid ECB crisis loans, was reducing the amount of liquidity in the financial system.