9. Broker-dealers will be less willing and able to act as stabilizers by stepping up with their own balance sheets. Both regulatory and market forces have limited their appetite for this countercyclical role. In addition, their willingness to accumulate such inventory decreases as we get closer to the close of their fiscal year (which, for many, is December).

To maintain financial stability, particularly within high yield, the hope is that Third Avenue’s problems are quickly seen as specific to that manager’s investment style and strategy rather than a reflection of the asset class as a whole. The biggest risk is that this episode rouses investors who were lulled into complacency by the belief that ample liquidity would be available to them when market consensus changed and they looked to reposition their portfolios.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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