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Trends in Arbitrage-Based Measures of Bond Liquidity

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Corporate bonds are an important source of funding for public corporations in the United States. When these bonds cannot be easily traded in secondary markets or when investors cannot easily hedge their bond positions in derivatives markets, the issuance costs to corporations increase, leading to higher overall funding costs. In this post, we examine recent trends in arbitrage-based measures of liquidity in corporate bond and credit default swap (CDS) markets and evaluate potential explanations for the deterioration in these measures that occurred between the middle of 2015 and early 2016.

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  • Nina Boyarchenko & Pooja Gupta & Jacqueline Yen, 2017. "Trends in Arbitrage-Based Measures of Bond Liquidity," Liberty Street Economics 20170109, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87168
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    Keywords

    corporate bond liquidity; CDS basis;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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