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A decline in bond market liquidity could threaten financial stability, the chairman of the Treasury select committee has warned in a letter written to Bank of England governor Mark Carney.
Tyrie highlighted particular concern over the gilt-edged bond market.
The warning pointed to tighter regulation on bank trading, affecting their ability to absorb changes in supply and demand; the effect of BoE quantitative easing programme and its increased gilt holdings, and a rise in non-active gilt holders such as commercial banks, building societies, pension and insurance funds.
Tyrie suggested that as the economy continued to grow, causing bond yields to rise and prices, fall there would be a “vicious circle of declining liquidity and financial distress.”
Tyrie said: “In other words, in current conditions, regulatory action could inadvertently compromise, not bolster, financial stability.”