What if you had a bond auction and nobody came?
That happened with #Germany's first negative yield ultra-long bond issue, with the Bundesbank being forced to retain two thirds of the €2 billion issue.
While Germany claims not to be worried, as private investors can always participate in the bond issue through the secondary market, the lack of private sector demand at auction underscores the growing illiquidity in sovereign debt markets. Leading bond investor PIMCO is already unloading its bond holdings, driven by concerns about anticipated rounds of quantitative easing.
If (when?) the rest of the marketplace decides to follow PIMCO and rush to the exits, a lack of potential buyers will precipitate a 2008-style liquidity crisis.
Central bank retentions of bond issues means this liquidity risk is not being priced into the market. One good Black Swan event to trigger a selloff and the liquidity crisis hits with full force, just as in 2008.