Everyone's Been Worried About Liquidity in the Wrong Bond Market
Who turned off the taps?
Bond market liquidity is terrible, goes the familiar refrain across Wall Street.
While liquidity is a notoriously difficult concept to define, a simple interpretation is investors' ability to buy and sell a security without significantly impacting its price. For years now, the $7.5 trillion U.S. corporate bond market has been the center of liquidity concerns as investors, traders and regulators all fret about the ability of investors to exit their large positions in such securities. With interest rates hovering around zero, U.S. companies have rushed to issue debt and investors have been all too eager to snap it up. At the same time, post-financial crisis regulation has made it more expensive and more difficult for big dealer-banks to hold such bonds on their balance sheets and facilitate trades for investors.