How can managers tackle bond liquidity dilemma?

FIXED INCOME

Since the demise of Lehman Brothers, banks have dramatically reduced the extent of leverage in their normal day-to-day operations.

By definition this has reduced the level of assets and inventory carried on the balance sheet, including the trading book run by the market-making desks.   In addition, the national regulators have systematically outlawed proprietary trading desks, which in pre-crisis markets played a significant role in the trading of risk assets and gave market-makers the confidence to trade large blocks of securities knowing there was generally an outlet and source of paper from the prop-desk community.   The European Banking Authority (EBA) added to the pressure on banks by setting the minimum cor...