On February 15, 2017, the FCA published a research paper summarizing its most recent research into liquidity conditions in the UK corporate bond market. The report concludes that there has been a general decline in liquidity since mid-2014. This stands in contrast to previous research undertaken by the FCA for the period between 2008 and 2014 which found little evidence of a quantifiable deterioration in liquidity. The publication extends the analysis to include the period after 2014 incorporating new data about orders and quotes with a finding that there has been a moderate decline in transaction-based proxies for liquidity. The research also highlights that there has been an increase in the amount of failed or rejected trades, an increase in the amount of time taken to fill an order, a decline in dealer quote rates on electronic bond trading platforms as well as a slight widening of some quoted and effective bid-ask spreads. The paper concludes that the combination of the information suggests that trading conditions in the UK have become more difficult over the past 18-24 months, however, the market is still relatively robust.
The research paper is available at: https://www.fca.org.uk/publications/research/new-evidence-liquidity-uk-corporate-bond-markets.
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