FCA paper dismisses bond liquidity concerns as 'anecdotal'

Findings come from occasional paper

Members of the Financial Conduct Authority's economics department have claimed there is no evidence that bond liquidity has deteriorated over the last eight years and has in fact improved, contrary to the concerns of many market participants.

Following a systematic assessment of liquidity in UK corporate bond markets with transaction-level data, an occasional paper written by two members of the chief economist's department, Matteo Aquilina and Felix Suntheim, found no evidence that liquidity has become more "flighty" in response to economic shocks of a mild to moderate nature. "On the basis of a series of widely accepted liquidity measures, we document that there is no evidence that liquidity outcomes have deteriorated in the market, despite the decline in inventory of dealers in this period," it said. "If anything, the ma...