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Why bond market liquidity matters so much

Agency brokers offer new hope for bond market liquidity 

The breach in liquidity is giving the agency brokers a once in a lifetime opportunity to develop meaningful business. They have the potential to be the conduit to dark pools of liquidity because they have no conflicts of interest and can offer investors trading anonymity. Agency brokers are able to go to both the buy and sell sides to find liquidity.

An ex-salesman tells Euromoney: “Dealers have no stick to beat investors with. They offer little or no liquidity, their research is somewhat discredited, they have or are about to sack the sales force, and new-issue dynamics have changed.”

What is liquidity? It’s a question that is being increasingly asked in the fixed income sector. The factors that are essential to the trading of bonds in secondary markets do not exist. Being able to get in and out of a position without dramatically moving the market or suffering a significant loss is all but impossible for investors right now – and the market has laboured under this state of affairs for well over a year.

Arguably, there needs to be at least a semblance of liquidity in fixed-income secondary markets for there to be a fully functioning debt capital market.

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