Corporate Bond Market Has Potential Emerging Risks, Finra Says

  • Risks include electronic trading and volatility of bond ETFs
  • Most figures still point to a healthy market, report says

The corporate bond market is characterized by emerging risks, including a surge in computer-driven trading and volatility of exchange traded funds that invest in debt, according to a report released Thursday by the Financial Industry Regulatory Authority.

“While the data indicate a robust market, they also highlight several areas of potential emerging risk that merit more attention,” Jonathan Sokobin, Finra’s chief economist, said in a statement. “These issues include increased electronic trading in corporate bonds, volatility of bond ETFs and sector-specific problems in high yield originating in the energy sector.”

Finra, a Wall Street regulator funded by the financial industry, based its findings on analysis of trades from 2003 through September of this year. Positive signs for corporate bonds include the fact that issuance is at a record level and that trading costs have fallen, the regulator said.

The analysis will add to a debate over whether an increase in electronic buying and selling has improved trading or introduced risks that make the market less stable. Finra’s analysis focused on the liquidity of corporate bonds.

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