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Debt markets have so far passed their biggest test since the 2007-09 financial crisis, with liquidity remaining intact as concerns mount about the economic impact of the coronavirus, market experts say.

Although analysts and investors expect liquidity to tighten if markets remain under stress over the coming weeks, they are positive that debt markets are operating in a way that can help avoid a credit crunch in all but the most extreme scenarios.

Fixed income market structure has changed over the past decade, largely as a result of post financial crisis regulations that make it more expensive for banks to act as market makers.

While this has lowered the risk of banks failing, it has shifted bond market liquidity to professional trading firms, many of them trading on electronic platforms. It has also made fixed income exchange traded funds (ETFs) a more attractive option for many firms when sourcing liquidity.

Some analysts and investors have expressed concerns the banks’ retreat left debt markets vulnerable to freezing in times of stress. They have also voiced fears that big outflows from ETFs could leave managers stuck with illiquid bonds they cannot off-load.

However, Matt Freund, head of fixed income strategies at Calamos Investments, said that, so far, credit and bond markets have remained relatively liquid and prices were transparent.

“We’re certainly not out of the woods and we’re going to have to take body blows along the way but I think markets are functioning as they should,” he said. “The big ETFs have done a really good job of focusing attention on the more liquid names.”

Bond ETFs, which house over $1 trillion of assets, have made it easier for investors to adjust the level of risk in their portfolios during periods of volatility, said Kevin McPartland, head of market structure and technology research at Greenwich Associates.

He pointed to the iShares iBoxx High Yield Corporate Bond ETF, or HYG, where volumes spiked to a much greater degree than volumes in the underlying bond market.

“Market participants, whether retail or institutional, are now able to position or reposition themselves very quickly, whereas if you were having to move around complete bond portfolios, it would have been a lot harder and taken a lot longer,” McPartland said.

Calamos’ Freund said he expects prices to be more volatile than they would have been in previous crises, in part due to trading fees being scrapped for many retail investors.

“People have gone exceptionally short-term in their thinking because there’s no cost in selling out of everything today and buying it back tomorrow,” he said.

Fixed income electronic trading volumes spiked in February along with the heightened volatility.

Tradeweb Markets, which matches buyers and sellers of rates, credit, equities and money markets, and MarketAxess, an electronic trading platform for fixed income securities, reported record trading volumes in February.