Corporate bond yields caused by reduction in liquidity and inactivity

The most interesting aspect of Mervyn King's speech to the CBI in mid-January was the reference to t...

The most interesting aspect of Mervyn King's speech to the CBI in mid-January was the reference to the Bank of England's plan to start making official purchases of high-quality assets - including corporate bonds. This is part of a broader set of Treasury proposals to support the banking system that include a scheme to insure banks against further losses on their toxic assets. King recognises that, in their desire to conserve capital, banks have substantially scaled back their market-making activity in corporate bond markets. A large part of the 5% plus spread of corporate bond yields over...