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Resilience of trading networks: evidence from the sterling corporate bond market

Author

Listed:
  • David Mallaburn

    (Bank of England)

  • Matt Roberts-Sklar

    (Bank of England)

  • Laura Silvestri

    (Bank of England)

Abstract

We study the network structure and resilience of the sterling investment-grade and high-yield corporate bond markets. Using proprietary, transaction-level data, first we analyse the key properties of the trading networks in these markets. We find that the trading networks exhibit a core-periphery structure where a large number of non-dealers trade with a small number of dealers. Consistent with dealer behaviour in the primary market, we find that trading activity is particularly concentrated for newly issued bonds, where the top three dealers account for 45% of trading volume. Second, we test the resilience of these markets to the failure or paralysis of a key dealer, or to bond rating downgrades. We find that whilst the network structure has been broadly stable and the market broadly resilient around bond downgrades over our 2012–2017 sample period, the reliance on a small number of participants makes the trading network somewhat fragile to the withdrawal of a few key dealers from the market.

Suggested Citation

  • David Mallaburn & Matt Roberts-Sklar & Laura Silvestri, 2019. "Resilience of trading networks: evidence from the sterling corporate bond market," Bank of England working papers 813, Bank of England.
    • Handle: RePEc:boe:boeewp:0813
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    References listed on IDEAS

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    Cited by:

    1. Domenico Di Gangi & Vladimir Lazarov & Aakash Mankodi & Laura Silvestri, 2022. "Links between government bond and futures markets: dealer-client relationships and price discovery in the UK," Bank of England working papers 991, Bank of England.
    2. Yuliya Baranova & Graeme Douglas & Laura Silvestri, 2019. "Simulating stress in the UK corporate bond market: investor behaviour and asset fire-sales," Bank of England working papers 803, Bank of England.
    3. Ana Fiorella Carvajal & Ricardo Bebczuk, 2024. "Liquidity In Corporate Markets," World Bank Publications - Reports 41408, The World Bank Group.
    4. Jamie Coen & Patrick Coen, 2022. "A structural model of liquidity in over‑the‑counter markets," Bank of England working papers 979, Bank of England.

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    More about this item

    Keywords

    Corporate bond market; financial networks;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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