A liquidity crisis in the commercial paper debt market could force “firesales” of as much as $43bn in assets, according to an analysis by the Royal Bank of Scotland. A swathe of off-balance sheet vehicles run by banks and asset managers that buy bonds backed by mortgages and other debt are facing forced asset sales to fund their short-term liquidity requirements. Such vehicles have faced a dramatic funding crunch in the short-term CP market after investors fled to safer instruments. Analysts at Unicredit said the price declines due to forced sales could trigger sell-offs at other SIVs “in a domino-style action.”
