Is Liquidity a Concern in the Corporate Bond Market?
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IS LIQU I DITY A CONCERN IN THE CORPORAT E BOND MA RKET? For several years, there has been concern in the Corporate Bond Markets that investors may lack the ability to get out of their positions, because of liquidity issues. With interest rates set to increase later this year, U.S. corporations are rushing to issue new debt. Investors seem eager to buy it as well. It has become more expensive though, for big bands to hold bonds on their balance sheets and make a market for investors, due to new regulations since the 2008 financial crisis.
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By Jason GalanisFor several years, there has been concern in the Corporate Bond Markets that investors may lack the ability to get out of their positions, because of liquidity issues.
Transcript of Is Liquidity a Concern in the Corporate Bond Market?
IS LI
QUIDIT
Y A C
ONCERN IN T
HE CORPO
RATE B
OND MARKET?
For several years, there has been concern in the Corporate Bond Markets that investors may lack the ability to get out of their positions, because of liquidity issues.
With interest rates set to increase later this year, U.S. corporations are rushing to issue new debt.
Investors seem eager to buy it as well.
It has become more expensive though, for big bands to hold bonds on their balance sheets and make a market for investors, due to new regulations since the 2008 financial crisis.
JASON G
ALANIS
: “W
ILL LI
QUIDIT
Y IS
SUES P
USH INVES
TORS A
WAY
?”
Recent reports suggest that concern over investors ability to trade corporate bonds, may be focused on the wrong type of bonds.
Analysts claim that the real trouble is in the U.S. Treasury Bond market.
In the last few years, it seems that there has been an improvement in the liquidity factor for corporate bonds and a deterioration in the U.S. Government Bond market.
The Federal Reserve’s quantitative easing has been the cause for this. Big chunks of the market have been taken out of circulation.
Trading in junk-rated corporate bonds, has been averaging 0.7 percent of their market per day.
Investment grade corporates trade at 0,4 percent of their market each day. U.S. Treasuries are at 4 percent. U.S. Treasuries have the highest liquidity, it has had the largest relative drop in liquidity in recent years, over both junk corporate bonds and investment grade.
Experts claim that U.S. Treasuries have lost 70 percent of their liquidity since the financial crisis of 2008. The high-yield market has lost 30 percent; investment grade has lost 50 percent.
JASON G
ALANIS
: “W
ILL LI
QUIDIT
Y IS
SUES P
USH INVES
TORS A
WAY
?”
Therefore, investors should worry about the decline in liquidity in the corporate bond market.
However, it appears that those in the U.S. bond market should be even more concerned.
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Address: 1920 Bel Air Road, Los Angeles, Califonia, 90077
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