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Has US Corporate Bond Market Liquidity Deteriorated?- Liberty Street Economics

Highly IllogicalIn conclusion, the price-based liquidity measures—bid-ask spreads and price impact—are very low by historical standards, indicating ample liquidity in corporate bond markets. This is a remarkable finding, given that dealer ownership of corporate bonds has declined markedly as dealers have shifted from a “principal” to an “agency” model of trading. These findings suggest a shift in market structure, in which liquidity provision is not exclusively provided by dealers but also by other market participants, including hedge funds and high-frequency-trading firms. FULL ARTICLE 
Comments
  • StingerOctober 8, 2015"And to think, these past several years all we needed was a few arbitrary references to a handful of loosely defined charts to prove there are no liquidity issues and to support theories of a major positive shift in market structure. All FI investors out there who have been cautious, this is your sign to get back in there and BUY!! BUY!! BUY!! Ok, apologies for my tongue in cheek response intro but after reading this article I couldn't help it. I really cannot follow t…"
  • Wolfman
    WolfmanOctober 8, 2015"Not only is this "illogical", it doesn't take into account that RATES ARE PERSITENTLY LOW and these low rates must be taken into account when making a judgment that bid ask spreads are low by historical standards. I can see Captain Kirk hearing Spock say that this is illogical and then he calls down to the engine room, where, by the way the rates are set, only to hear Mr. Scott say "I'm givin' here all I've got Captain!" Do we think the execution of Monetary Policy ca…"
  • Merlin
    MerlinOctober 8, 2015"These guys work for the Fed? Does that mean they are govt employees and we pay their salaries? Ugh. I don't pretend to know the answers to the questions posed, although i have my opinions, but this study seems extremely flawed. Lets only just look at their conclusion of the average bid offer spread over time. if i am interpreting properly the researchers are using the 5 day moving average of each bonds bid offer spread using the daily average price of purchses from cl…"
  • Goose
    GooseOctober 7, 2015"Whoa, I have several thoughts/questions about this article before I also leap onto the “all is well” square on my “Jump to Conclusions Mat”.* - 400 Billion in corporate bond US dealer inventory? I have seen different numbers, but never one like that. I think GS estimated the high at 40 billion, with mortgage and credit at a high of 240b. - How do you make market conclusions looking only at HG bonds, and then in the follow up article only 60-100 of HG bonds in the most…"

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4 Comments on "Has US Corporate Bond Market Liquidity Deteriorated?- Liberty Street Economics"

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Goose
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Whoa, I have several thoughts/questions about this article before I also leap onto the “all is well” square on my “Jump to Conclusions Mat”.* – 400 Billion in corporate bond US dealer inventory? I have seen different numbers, but never one like that. I think GS estimated the high at 40 billion, with mortgage and credit at a high of 240b. – How do you make market conclusions looking only at HG bonds, and then in the follow up article only 60-100 of HG bonds in the most popular CDS index? – Corporate debt outstanding hitting almost 8T (I think… Read more »
Merlin
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These guys work for the Fed? Does that mean they are govt employees and we pay their salaries? Ugh. I don’t pretend to know the answers to the questions posed, although i have my opinions, but this study seems extremely flawed. Lets only just look at their conclusion of the average bid offer spread over time. if i am interpreting properly the researchers are using the 5 day moving average of each bonds bid offer spread using the daily average price of purchses from clients and sales to clients. Huh? Potential issues: -without a size threshold these numbers will be… Read more »
Wolfman
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Not only is this “illogical”, it doesn’t take into account that RATES ARE PERSITENTLY LOW and these low rates must be taken into account when making a judgment that bid ask spreads are low by historical standards. I can see Captain Kirk hearing Spock say that this is illogical and then he calls down to the engine room, where, by the way the rates are set, only to hear Mr. Scott say “I’m givin’ here all I’ve got Captain!” Do we think the execution of Monetary Policy can be disconnected from political motivations? The ongoing search for Dilithium crystals, which… Read more »
Stinger
Guest
And to think, these past several years all we needed was a few arbitrary references to a handful of loosely defined charts to prove there are no liquidity issues and to support theories of a major positive shift in market structure. All FI investors out there who have been cautious, this is your sign to get back in there and BUY!! BUY!! BUY!! Ok, apologies for my tongue in cheek response intro but after reading this article I couldn’t help it. I really cannot follow the authors logic into their conclusions, and found myself taking a queue from Wolfman’s Star… Read more »
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