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Trading Liquidity and Funding Liquidity in Fixed Income Markets: Implications of Market Microstructure Invariance

Author

Listed:
  • Albert S. Kyle

    (University of Maryland)

  • Anna A. Obizhaeva

    (New Economic School)

Abstract

This essay applies market microstructure invariance to fixed income markets. An invariance-based illiquidity measure calibrated from stock market data is extrapolated to the markets for Treasury and corporate fixed income securities. By consistently incorporating both leverage neutrality, this illiquidity measure explains both trading liquidity and funding liquidity. Invariance predicts that Treasury markets are about 55 times more liquid than markets for individual corporate bonds and operate about 3,000 times more quickly. Invariance is used to discuss repo haircuts and the flash rally of October 15, 2014.

Suggested Citation

  • Albert S. Kyle & Anna A. Obizhaeva, 2020. "Trading Liquidity and Funding Liquidity in Fixed Income Markets: Implications of Market Microstructure Invariance," Working Papers w0271, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:w0271
    as

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    File URL: https://www.nes.ru/files/Preprints-resh/WP271.pdf
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    References listed on IDEAS

    as
    1. Anna, Petrenko, 2016. "Мaркування готової продукції як складова частина інформаційного забезпечення маркетингової діяльності підприємств овочепродуктового підкомплексу," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 2(1), March.
    2. Adam Copeland & Antoine Martin & Michael Walker, 2010. "The tri-party repo market before the 2010 reforms," Staff Reports 477, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    market microstructure; liquidity; bid-ask spread; market impact; transaction costs; order size; invariance; fixed income; banking; systemic risk; repo markets;
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