Why bond liquidity will never recover to 2007 levels

Liquidity in the corporate bond market will never recover to 2007 levels because investment banks are now so risk averse, according to Legg Mason's global bond manager Ian Edmonds.

The manager of the £612m Legg Mason Global Multi-Strategy Bond fund said a combination of continued market volatility and a lack of liquidity could lead to a price shock. As a result, he has positioned his portfolio at its most defensive since launch in May 2008, scaling back exposure to higher risk assets in a bid to protect his investments. Liquidity in the investment grade bond market has fallen 80% since 2007, according to the IMA, prompting the FSA to write to leading corporate bond managers asking them what procedures they have in place to manage large-scale redemptions. Edmo...