Big Benchmark Bonds: Dream or Reality? – Hedges Associates
August 6, 2015 \ 3 Comments
The question that begs to be asked is: Could we enhance the corporate bond picture by reducing the number of issues outstanding, concentrating trading activity and thus increasing ‘liquidity’?
The answer is ‘Dream’.
When large investors go to large issuers and offer to buy a ginourmous issue or re-opening at a premium to market levels, then maybe ‘reality’.
As likely as pigs flying.
Absolutely a dream, and the author touches on exactly the reason why: ” Frequent issuers may present some opportunity for larger issues, if investors offer them sufficient incentives and don’t simply expect them ‘to do the right thing’ as ‘custodians of the market’ or jump for the promise of ‘cheaper borrowing rates tomorrow’.”…..There is nothing motivating eligible issuers to accommodate the benchmark request. This type of change in behavior requires large incentives for the issuer. That being said, I always get a kick out of proponents of the benchmark approach declaring that the issuers would be able to save more… Read more »
There will be a version of this dream that will come true, but it will take time and technology to accomplish. Technology is changing and challenging every industry and there will be new products that expand capital creation; we’ll just have to keep working on it.
BTW, I think Mr. Hedges is helping to lead the thought process on this one!
S&P: All That Bond Market Illiquidity is Bad for Bond Funds, But Not Banks – BloombergJuly 1, 2015
Bankers and Regulators Voice Fears on Bond Market VolatilityMay 6, 2015
BCG Report – Adapting to Digital Advances: Global Capital Markets 2015May 14, 2015