S&P: All That Bond Market Illiquidity is Bad for Bond Funds, But Not Banks

Standard & Poor's, the credit rater, has just published new research on the changing structure of the corporate bond market and its effect on on a wide variety of financial entities.

Bankers, regulators and investors have long been complaining that the ability to buy and sell in the bond market without impacting the prices of securities has deteriorated in the aftermath of the financial crisis. Some blame new regulation that has made it more expensive or more difficult for banks to hold bonds on their balance sheets for this decline in so-called "liquidity." Others blame years of zero interest rates that have essentially herded investors into the same (long-only) bond positions. Many blame a combination of the two and this seems to be the stance taken by S&P analysts in their new report.