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.
Amid rising rates and with credit spreads gapping out, secondary market bid-offer spreads were too wide and the risks too high of executing any sizeable block without pushing prices even further down.
Secondary markets and primary markets both stalled.
Illiquidity in a sell-off is a problem that bond market participants have had over a decade to prepare for.
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