The Wall Street Journal is heavily paywalled so a synopsis will do: what it is important to realise is that the assets in short supply are, most especially, government bonds. The main reason is that government bonds now play a crucial role in the world’s financial markets as collateral when lending.
This is a relatively new phenomena: until 2008 companies were willing to put massive sums on deposit with banks without requiring security to ensure that they would be repaid. Then the banks failed. As a result what became apparent was that banks’ capacity to repay was dependent upon the whim of the governments who were really underwriting their solvency. The significant growth of what is called the repo market is the consequence. To simplify somewhat, companies do not now deposit money overnight, leaving them as unsecured creditors of the bank. Instead they sell the bank the most secure and financially stable asset they can use (government bonds) with a contract that guarantees them the right to require the asset the next day with the price adjusted for overnight interest.
A cash depositor will sell a bank a security instead? Err, buy perhaps?
And it’s not about companies, here’s the WSJ piece un-paywalled:
The world is running out of safe financial assets. One reason may be regulators’ push to make trading safer.
A scarcity of safe collateral can create bouts of volatility in the markets where investors fund their purchases. Economists also worry that a lack of quality public-sector assets leads the private sector to create less reliable and riskier substitutes.
Global rules increasingly require that investors deposit cash as security, called margin, when they trade with each other. This money is often left at clearinghouses, which are intermediaries that stand between buyers and sellers and step in if one of the parties won’t make good on a transaction. Regulators are trying to give these clearinghouses more heft to make the financial system safer.
The clearinghouses, in turn, have to do something with the cash, and they frequently take it to repurchase, or “repo,” markets , where they lend it out in exchange for high-quality assets such as German bunds or U.S. Treasurys.
That has the effect of vacuuming up safe assets. Paradoxically, cash—at least its electronic form—isn’t ultrasafe: It needs to be left in bank deposits, and even the strongest banks have some risk. Treasurys and bunds don’t.
It’s clearing houses, not companies. And they buy, not sell. And they don’t sell anything to a bank either.