Challenged Liquidity: Bond Pricing in Stressed Markets

 

Challenged Liquidity: Bond Pricing in Stressed Markets 

Liquidity in the fixed income market has been challenged of late as the health crisis and financial market concerns have escalated. Global lockdowns aimed at mitigating the spread of COVID-19 will undoubtedly have ramifications on the global economy. In the process, bond yields have moved lower and risk-asset prices – including those of Investment Grade and High Yield bonds — have fallen. Consequently, liquidity challenges in the Canadian fixed income market have raised the cost to transact and in some segments of the market, trading has been rather limited. It seems as though the recent market volatility and investor fear has converted bond liquidity from a right into a privilege, prompting fixed income investors to evaluate the trade-off between immediate liquidity and the cost to transact during this unique environment.