US Corporate Bond Liquidity: The Art of the “Order”

Dominated by bi-lateral negotiation, immediacy, and large trade sizes, the corporate bond market traditionally viewed executable pricing models with disdain, considering them to be “taboo”. Macros structure changes including, regulation, technological innovation, and investment behavior are changing market dynamics. While these alternative liquidity pools are more conducive to trading smaller lot sizes, institutional investors are starting to view them as a viable tool to have in their execution arsenal. Dealers are no stranger to the microstructure, they’ve utilized retail ATS with indicative pricing models for more than two decades. Market-makers are now augmenting their trading desks to adapt to the growing demand, building pricing engines capable of providing continuous liquidity. There is much work to be done, but executable models are slowly finding a place in an evolving corporate bond trading landscape.