An umbrella body for financial regulators has waded into the debate on bond liquidity by claiming it has detected no “substantial evidence” of a major decline from historic norms.
In a consultation report, the International Organization of Securities Commissions (Iosco) analysed liquidity metrics, survey results, industry discussions and research but did not find substantial evidence showing liquidity had deteriorated markedly during “non-crisis periods”.
“There is no reliable evidence that regulatory reforms have caused a substantial decline in the liquidity of the market, although regulators continue to monitor closely the impact of regulatory reforms,” the report added.
Iosco even found evidence of improving liquidity in some areas, such as bid/ask spreads and trading volumes.
The report echoes the findings of an occasional paper published by the FCA earlier this year. That paper suggested the level of UK corporate bond market liquidity may actually have increased in the years since the financial crisis.
TwentyFour Asset Management’s Chris Bowie issued a scathing response to those findings, however, accusing the authors of trying to “rewrite history” and calling the paper “dangerous”.
“Our day-to-day trading experience has been the polar opposite of this academic theory,” he said.
Iosco, meanwhile, has called for responses to its study and for further data, indicating its findings were hampered by a lack of available statistics.
