Crisis? What crisis? USD corporate bond liquidity since COVID

The COVID-19 crisis has impacted nearly all asset classes, and USD corporate bonds have not been spared. As the mid-March 2020 market volatility affected USD corporate bond prices, it also compromised their liquidity. While these spikes in liquidity costs occurred across the USD corporate bond asset class, we found the level of impact—and the path to returning to pre-crisis levels—varied across credit rating and sectors.

As the onset of the pandemic roiled US markets the second week of March 2020, USD investment grade corporate bonds saw a dramatic increase in liquidity costs. A useful metric for gauging liquidity costs is price liquidity ratio (PLR)— which looks at market impact and measures the movement in price of a security for an executed trade of a given size. A higher PLR represents a larger movement in price for a given trade size and therefore shows lower liquidity. By this metric, the PLR for the corporate sectors of the FTSE US Broad Investment-Grade Index (USBIG®) rose from 0.02% at the end of February to 0.10% at the start of April—representing a significant spike in liquidity costs.

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