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How Do You Define Bond Liquidity? – Bloomberg

ThinkerTreasury’s first set of questions, perhaps signaling the importance of a much-debated topic in the market, asks how respondents define liquidity. FULL ARTICLE 
Comments
  • Wolfman
    WolfmanJanuary 23, 2016"My remarks are brief as the others have done a superb job with this week's post. Maybe it was the full moon this week that turned me into a monster, but I see things simply. Governments, companies, people, Wolfmen, all act in their own self interest. If there is a structure that provides a fair marketplace with many participants converging many different needs, it will be a liquid marketplace. If we are going to homogenize the participants and eliminate the opportunit…"
  • Cougar
    CougarJanuary 23, 2016"In defining liquidity we often get distracted into the discussion about the causes and challenges of executing secondary trades compared to the recent past rather than the definition itself. There can be no fixed measure of liquidity as it depends on the product, securities and other variables - this hurts our ability to define it. Liquidity itself has a sliding scale. We know and off-the-run 30Y UST will be less liquid than a 10Y UST. Similarly an off-the-run $250MM…"
  • Zob
    ZobJanuary 23, 2016"Some impressive thoughts and comments so far... but I don't believe the fundamentals have changed... liquidity is primarily a consequence of willing buyers and willing sellers. In this new world -on a good day- with traditional market makers becoming slowly an extinct species (5 have pulled out of Euro Govvies this month!), there just aren't enough willing buyers!…"
  • Charlie
    CharlieJanuary 22, 2016"A great initiative by the Fed. I am tired of different measures of liquidity being quoted by different people depending on which point they wish to prove. If the Fed can get their hands around this one perhaps we can all have a meaningful discussion on levels of liquidity and statistics such as trading volume divided by notional outstanding will be de-bunked for what they are. I wouldn't expect the conclusion on the measure of liquidity to be a lot different after the…"

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8 Comments on "How Do You Define Bond Liquidity? – Bloomberg"

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Sundown
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There are several definitions of liquidity, and like everything else, definitions change according to the context in which they are viewed. One example of this happened in a conversation I had with a friend the other day who saw the 60 minutes piece on Sean Penn and his interview with the infamous drug lord “El Chapo”. In the piece Penn called himself a “journalist”. My friend was offended by this and said he was anything but. My thought was different, arguing that given today’s media market structure , anyone with access to social media is a “journalist”. More people get… Read more »
Stinger
Guest
I think the most relevant definition of liquidity is something along the lines of “(Market Impact)/(Volume).” In other words, how much can you get done per unit of market impact? Looking solely at bid-offer badly misconstrues the reality of what liquidity means to an investor or market maker…we all know that particularly in the credit markets, bid-offer is subject and sometimes one trade – or even just an inquiry – of any size can move a market significantly. Personally, I think transparency regarding trading levels in a market without enough depth leads to less liquidity, because it increases market impact… Read more »
Goose
Guest
Sundown’s last point is a good one. Fair access, anonymous markets featuring full pretrade transparency bring tremendous adverse selection risk, and market makers respond accordingly. Small size, tight or wide markets, depending on security profile. You want to begin increase liquidity? Let’s start with the imbalance of the biggest participants who also have the most information today…the buy side…vs. who has less information, but has the job, mandate, and infrastructure of providing immediate risk transfer, the market maker/dealer community. The primary medium for price discovery, IDB’s has dried up. Look at how the # of bonds issued has grown, yet… Read more »
Merlin
Guest
I would be curious to hear if people think the below is at all interesting, meaningful or correct regarding the Treasuries questions on liquidity in the UST market. It seems to me that people are not talking about one of the most important things that creates liquidity, and that is having a view and a position to trade around. When the IDB market only allowed primary dealers to transact, people knew there was a select group of people that had active axes based on client flows and proprietary views All of these dealers got information by having relationships with clients… Read more »
Charlie
Guest
A great initiative by the Fed. I am tired of different measures of liquidity being quoted by different people depending on which point they wish to prove. If the Fed can get their hands around this one perhaps we can all have a meaningful discussion on levels of liquidity and statistics such as trading volume divided by notional outstanding will be de-bunked for what they are. I wouldn’t expect the conclusion on the measure of liquidity to be a lot different after the discussion but we will have an established and accepted consensus of opinion. Once we have a consensus… Read more »
Voodoo3
Guest

Some impressive thoughts and comments so far… but I don’t believe the fundamentals have changed… liquidity is primarily a consequence of willing buyers and willing sellers. In this new world -on a good day- with traditional market makers becoming slowly an extinct species (5 have pulled out of Euro Govvies this month!), there just aren’t enough willing buyers!

Cougar
Guest
In defining liquidity we often get distracted into the discussion about the causes and challenges of executing secondary trades compared to the recent past rather than the definition itself. There can be no fixed measure of liquidity as it depends on the product, securities and other variables – this hurts our ability to define it. Liquidity itself has a sliding scale. We know and off-the-run 30Y UST will be less liquid than a 10Y UST. Similarly an off-the-run $250MM Boeing issue will be less liquid than the 30Y UST. We can partially predict this looking at the product and buyers:… Read more »
Wolfman
Guest
My remarks are brief as the others have done a superb job with this week’s post. Maybe it was the full moon this week that turned me into a monster, but I see things simply. Governments, companies, people, Wolfmen, all act in their own self interest. If there is a structure that provides a fair marketplace with many participants converging many different needs, it will be a liquid marketplace. If we are going to homogenize the participants and eliminate the opportunity for profiting from providing different services, then we are dependent on the qualities of others as Blanch Dubois.
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