Flight-to-liquidity

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A flight-to-liquidity, is a stock market phenomenon occurring when investors sell what they perceive to be less liquid or higher risk investments and purchase more liquid investments instead, such as US Treasuries. Usually, flight-to-liquidity quickly results in panic leading to a crisis.

For example, after the Russian government defaulted on their government bonds (GKOs) in 1998 many investors sold European and Japanese government bonds and purchased on-the-run US Treasuries instead. This widened the spread between off-the-run and on-the-run US treasuries, which ultimately led to the collapse of Long-Term Capital Management. ^[1]

[edit] See also

• Financial contagion
• Financial crisis
• Flight-to-quality
• Safe haven
• Stock market crash

[edit] External links

• Flight-to-Quality or Flight-to-Liquidity?
• The Flight-to-Liquidity Premium in U.S. Treasury Bond Prices
• Flight to Liquidity Due to Heterogeneity in Investment Horizon

[edit] References