Liquidity will be at a premium if steep bond market sell-offs resume

New trading protocols offer some hope that investors may find the other side of the trade, but turnover in normally liquid bonds can suddenly collapse.

Investment banking revenues have been sustained by high volumes of fixed income market trading in recent quarters, even as bond prices fell. But the quality of those markets has varied alarmingly.

At the worst point in June, debt capital markets bankers pinned the collapse in new issue volumes on the fact that bond funds were suffering outflows and portfolio managers simply would not raise cash – even for attractively priced new issues – if that required selling assets from their portfolios.

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