Bond liquidity: special focus
Euromoney explores bond liquidity and investigates the winners and losers.
Investors are using exchange-traded funds (ETFs) as tactical tools and strategic, longer-term allocations, so banks are investing heavily to capture this business.
The sharp sell-off in credit in December and rapid recovery in the first quarter is a worrying sign of market dysfunction.
Lifting restrictions on foreign investors and encouraging local corporate bond issuance top list of priorities for head of new capital markets agency.
Three years after it was founded, Yangon Stock Exchange is marooned, which doesn’t augur well for developing the capital markets.
The government is pushing structural reforms despite the economic crisis; new tax regulations aimed to bring money onshore.
Islamic finance has come a long way over the past few decades, maturing into a $2.4 trillion industry, but some long-term problems remain and the recent wrangle over a Dana Gas sukuk shows credibility is still an issue.
New numbers suggest there could be trouble ahead for Asian high-yield issuers.
The deadline looms for SEC-regulated investors to report on the liquidity of individual bond positions, but the more pressing question is the accuracy of fund valuations.
Frequent issuers on both sides of the Atlantic are exploring new ways to concentrate their high-quality liabilities into fewer more-liquid bonds to avoid paying a premium as markets sell off.
Even its main architects admit that Europe’s banking resolution directive is fundamentally flawed – and they are in a desperate race to fix its failure to deal with funding and liquidity crises before the next bank collapse occurs.
A rule many thought had died silently in the legislative process is about to be resuscitated, and bond market pros say it will be devastating to bond market liquidity.
When companies are allowed to borrow aggressively at ultra-cheap rates, things can turn ugly fast when trouble strikes.
There is still a dogged belief among underwriters that they can find liquidity that cannot be sourced electronically.
Monetary policy has delivered global growth and booming asset prices. During the financial crisis and its aftermath, central bankers demonstrated admirable pragmatic radicalism. But monetary policy is not a cure-all, and another global downturn will present an even tougher test for policymakers.
When rates start to rise, the big action will be in credit markets. Banks are already staffing up amid efforts to unfreeze the market structure and make it easier to take on and lay off risk.
BNY Mellon and HSBC hope that, in an illiquid fixed income market with no registry of beneficial owners, their asset management clients may benefit from alerts about other counterparties wishing to buy or sell bonds.
Here is the surprising news about liquidity in the bond markets: it’s getting better.
A BNY Mellon study shows that big investors have finally accepted that the free-flow of collateral and ease of funding through repo they enjoyed pre-crisis will never return and they are now urgently seeking new ways to finance securities transactions that do not depend on bank balance sheets.
Spreads at multi-year lows as demand remains buoyant; Investors reverse underweight positions.
Both AT1 and tier-2 investors lost everything when Banco Santander rescued Banco Popular, while senior bondholders were untouched. The rescue has shown that when banks in Europe get into trouble it is liquidity, not capital, that matters and that the fate of subordinated bondholders is anything but predictable.
Quantitative easing has been the defining monetary policy innovation of the 21st century. With global economic recovery now seemingly robust, the challenge facing policymakers is to reverse this stimulus. This is likely to be fraught with danger, particularly in Europe.
The liquidity issues that have plagued the Kingdom’s banks for months appear to have abated. But a persistently low oil price and the impending generational reform programme mean that Saudi Arabia’s financial sector still faces some big challenges.
Bond market losses that began in November with the sharp rise of inflation expectations for Donald Trump’s coming presidency continued towards the end of the year.
The election of Donald Trump prompted a vicious sell-off in global bonds. Investors face the new year with warnings over volatility and inflation ringing in their ears. Will it be as bad as they think?
Global Aggregate index yield jumps by 25bp in 11 days; $8.2 billion leaves US bond funds in one week.
The decreasing liquidity in the corporate bond secondary market is worrying as it is key to price new issues
As well as displaying confidence in the Argentina’s progress towards economic and financial normalization, the local currency transaction will provide non-exporting companies vital sources of liquidity from the international markets without incurring FX risk.
Eurobonds back after three-month post-coup shutdown; October supply tops $3.5 billion.
Though he was not involved in the deal, Bernd van Linder, CEO of Saudi Hollandi Bank, was delighted with the result. The influx of foreign money will help mitigate the liquidity shortfall of Saudi banks, he says.
Banks are stepping up their offerings as the divide grows between corporates with plenty of liquidity and those struggling.
HDFC launches first corporate masala bond; others may be slow to follow.
News of the ECB’s corporate-sector purchasing programme shocked the market in March and has already prompted a stampede for paper among desperate investors before the central bank has purchased a single bond. Bankers and investors are already complaining that the programme will not have its desired effect.
Euromoney’s round-up of the European Central Bank’s CSPP, including the eligibility criteria and process.
Mila just the start, says Peru’s finance minster; pan-Andean market liquidity coming.
Petrobras opens way for strong Brazilian pipeline; Argentina sovereign praised for helping deal flow.
Negative interest rates turn conventional lending dynamics on their head and, bankers say, threaten the liquidity, risk and maturity transformation that lie at the heart of credit intermediation. In other words, they put the entire ethos of traditional banking in peril. Have central bankers misunderstood how the credit transmission channel works in their desperate attempts to stave off deflation?
The sovereign-bank nexus or the doom loop? Whatever you like to call it, senior German and European policymakers are wrong to want to limit bank holdings of government debt.
The Shariah-complaint finance sector has been growing strongly, but only in a few jurisdictions and with limited product diversity. As oil-derived liquidity flows dry up in its core markets in the Gulf, what can it do to fix its lack of international reach?
The European Central Bank’s announcement that it will extend its debt purchases to corporate bonds has given a boost to the region’s investment banks.
$94 billion coming due by end-2017; Bahrain pays up after downgrade.
Bond market liquidity traditionally relies on banks acting as market makers: being willing to act as shock absorbers and hold treasuries during a sell-off such as that recently witnessed by foreign central banks. Three things are necessary for them to be able to do this...
Volatility slams international DCM shut; choppy access but strong liquidity in 2016.
Investment-banking volumes in emerging Europe have fallen to their lowest levels for more than a decade. Some international banks are withdrawing capacity, while there is little sign of a pick up in the capital markets. So why are some of the universal banks still making positive noises?
New specialist liquidity providers are nibbling away at the share of the big universal banks in more and more parts of the FICC markets. In swaps, government bonds, foreign exchange, credit, and in securities financing and repo, new entrants are on the march, stepping up to fill the gaps left by the retreating banks. Tech savvy, led by quants and data engineers rather than the expensive traders sitting on the scrap heap of most banks’ inferior tech, the new entrants now just need people with the skills to win over large numbers of customers.
In all financial markets, the biggest customers for liquidity providers are often other dealers.
European Central Bank president Mario Draghi has been dropping further hints that he is considering unconventional measures to combat deflationary pressures in the region. This sets the stage for potential central bank buying of European corporate bonds, which in turn raises the question of whether there will be opportunities for nimble investors to game a new ‘Draghi Put’ for corporate credit.
Commercial Bank of Dubai pays up; Gulf Investment Corporation cancels deal.
HSBC latest to pledge green bond investments; Barclays hits £1 billion target and promises more.
The drop in the oil price has combined with a general lack of liquidity to put issuers from Gulf states in an unfamiliar position. There may be no need to fear a crunch, but the region’s issuers must get used to the fact that they will have to pay up to raise capital.
The return of market volatility in late August put a focus on asset managers, with investment banks for once ceding the spotlight during a period of turmoil. There will surely be some bank trading mishaps, but the main threat to revenues is likely to come from diminished demand for investment products rather than dealing room blow-ups.
Bond markets: Resilience underscores European HY maturitySeptember 2015Bankers upbeat on issuance; inflows diverge with US.
It is now a mark of the serious individual in finance to issue a dire warning about the threat posed by a lack of market liquidity. What climate change is to the young liberal (or young person), so liquidity has become to the ageing plutocrat, secure perhaps in his own billions, but with a furrowed brow as he contemplates the potential havoc that could be wreaked by diminished liquidity.
Investor concerns mount as liquidity fragments; banks seek to aggregate orders.
|Reverse yankee issuance: View from the buy side
June 2015"The EU system is still driven by bank lending rather than the capital market, and the ECB’s massive asset purchase programme is indirectly diminishing the supply of high-quality, positive-yielding bonds and thus creating higher demand for corporate bonds. Relative to the US, Europe is a scarcity story."
Fear is spreading over the financial system’s vulnerability to increased volatility stemming from a broken and illiquid credit bond market. All participants agree the secondary trading is undergoing fundamental change as the big banks that used to make markets withdraw their capital, but no one has a vision for how it will alter. A new breed of banks, though, is making headway against the headwinds.
May 2015Curtailing communication between banks and investors may have untold consequences in bond markets that are already showing signs of episodic high volatility amid low volumes and shallow liquidity. It’s not a topic that has generated much coverage yet. But regulators could be setting up a very unlevel playing field.
Bond trading: Information trumps execution
Bond investors may need to travel down darker paths to cope with reduced secondary market liquidity.
Last month’s volatility provided a worrying reminder of how illiquid the bond markets have become, how piecemeal has been the response of traders, investors and issuers and how concerned regulators now are.
Blackstone and Pimco are talking a good fight when it comes to possible credit market dislocation. The widening in high-yield debt spreads that accompanied a bout of panic in global equity markets in mid October prompted displays of bravado from the investment firms.
Project Neptune rising amid renewed liquidity concerns
With volatility returning to bond markets, investors are fretting once more about illiquidity. Policymakers too worry that it might turn a bond market meltdown systemic. A new project for a shared messaging language to improve the flow of information connecting holders of inventory sounds unglamorous next to all-to-all trading platforms and central limit order books. But the rush of support from both buy-side and sell-side suggests Project Neptune could make a vital contribution.
Neptune initiative on track for second phase
As equity markets have sold off and investors rushed into risk-free bonds, even supposedly liquid US treasuries have seen prices gapping. As volatility rises and investors focus on grim fundamentals, they see a broken bond-market structure.
|Algorithmic trading set to transform the bond market
Intermediating the bond markets is shifting from a principal risk-taking business for banks to a brokerage business. At a time when the IMF is warning of bond market illiquidity, innovative solutions are springing up.
May 2014Salesmen hold the key to improving liquidity in corporate bonds. They just need to capture the network effect.
Algorithmic trading comes to the government bond market, while large virtual networks compensate for reduced dealer balance-sheet holdings of corporate bonds.
|The great bond liquidity drought...
Liquidity in the world’s bond markets has reached crisis point. Investors can no longer rely on banks to provide a crucial intermediary function in the secondary markets. It is time those fund managers started to think about providing that liquidity among themselves.
Liquidity: Fixing the present system
Bond markets: It’s time for open order books
Some of the world’s biggest bond investors warn that banks are no longer able to provide the crucial intermediary function in the secondary debt markets.
Dealers at the world’s biggest trading firms say the bond market correction in June, where big orders even in government bonds moved markets dramatically, demonstrated how dramatically liquidity has drained from the bond markets.
|Willing liquidity back into the markets
Investors hold about 99% of all bond inventory. Could all-to-all trading platforms provide the best answer to the crisis in liquidity?
The leading e-trading investment bank has been working with other dealers and buy-side clients on new bond trading platform Oasis, Euromoney reveals.
Top 10 non-government borrowers under pressure to provide more liquidity by standardizing issuance calendar.
E-BOOK - BOND LIQUIDITY SPECIAL ISSUE
Euromoney has been tracking the implications of secondary market illiquidity on the global bond markets for several years. This has become the defining challenge for all participants in the global bond markets and Euromoney's unrivalled coverage of the issues, collated in this e-book, is essential reading for anyone active in this market.
RBC Capital Markets’ retreat from eurozone primary dealerships looks portentous rather than idiosyncratic.
Retail investors fled the credit markets during June, following the jump in US treasuries amid fears over Fed policy. But life insurers and pension funds, spotting desperately needed higher absolute yields, have been selectively buying.
Long-dated bonds collapse on tapering talk; Volatility underscores need for new thinking on liquidity
June 2013Wall Street was close to panic as fears of rising US Treasury yields brought capital markets to the brink of closure.
The day of the hybrids: Is the flowering corporate market as attractive as it seems?
|Primary debt survey 2013: Bankers feast as investors are left with crumbs
Activity in primary debt capital markets has never been greater. DCM desks are having record years. Investors are faced with a quandary: stay in, and stay with the rally; or try to get out, before the market turns. But those considering the latter option may be caught out. Even borrowers are getting worried about liquidity in the secondary markets.
QE has created ‘drugged’ environment; prime risk is that of economic recovery.
With concern growing over the credit risk embodied in many sovereign bonds, fixed-income investors need to think harder about how they assess risk.
Bond markets: The threat from rising rates
|Corporate bond market: The new liquidity trap
The liquidity-starved corporate bond market desperately needs to find a post-regulation equilibrium. Banks just can’t commit capital to market-making. So the smarter investors are looking at ways of delivering it themselves.
Looming Volcker rule and Basel III requirements harm the US corporate bond market and could have further ramifications for issuers and investors
Gain valuable insight as our expert panel discusses the critical issues affecting bond market liquidity and the rise of all-to-all trading platforms.
• Has credit bond market liquidity reached crisis point? • Is it time for investors to take responsibility and do something about the liquidity challenge? • Which kind of investors are trading on all-to-all platforms? • Will investors want to reveal their positions to competitors? • Can investors dealing on all-to-all platforms transact closer to the mid-market price and secure a trading cost advantage? • Could regulators push for transparency and exchange-like trading for bonds?
Liquidity in the world’s bond markets has reached crisis point. Investors can no longer rely on banks to provide a crucial intermediary function in secondary markets. It’s now time that investors took responsibility and did something about the liquidity challenge themselves. Failure will be disastrous for global financial markets.