Measuring Bond Market Liquidity In The New Age

There has been a lot of discussion about bond market liquidity and whether for certain asset classes the fixed income markets are becoming more illiquid over time. More importantly people have been talking about what liquidity means and how to assess it. Depending on who you ask, you will find you get a different answer.

At ICE Data Services, we define Liquidity as “the ability to exit a position at or near the current value.” Once we have defined what we mean by liquidity, we have a shared understanding of what we will be assessing. In the fixed income markets, it becomes incredibly important to project what type of situations might prevail in the markets whether or not there is a current or near term intent to trade. There are certain securities, for example municipal bonds, that are typically held for investment and there is no intent to sell. However, this does not mean there isn’t a potential to sell, which is one of the things we look to help solve for - what is the potential tradability of an instrument, whether the intent to trade is there or not.

Notwithstanding the availability of traditional metrics to assess liquidity, methods that have been used in the past, some market participants and observers have formed a view that those approaches are no longer effective or applicable for certain categories of fixed income assets. Firms are therefore being challenged to stretch beyond those conventional approaches and find new ways to assess liquidity.

Learn More About Liquidity Indicators


Listen to ICE Data Services’ Rob Haddad discuss Liquidity product development with the TABB Forum