Addressing Corporate Bond Liquidity Challenges

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By Shundrawn A. Thomas

The widening imbalance between credit supply and demand has exacerbated liquidity challenges.

These challenges have the potential to impact fixed income strategies, particularly indexed portfolios, including higher transaction costs, difficulty tracking market changes, and increased exposure to difficult-to-trade securities.

Fixed income market making and secondary trading for dealers has been stifled by Dodd-Frank regulations and stiffer capital requirements. Post financial crisis, dealer inventory (supply) has decreased while corporate bond issuance and AUM have increased, reflecting increasing demand.

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