Principal-Risk Trading in US Corporate Bonds: The Liquidity Dilemma

As the US Corporate Bond Market continues its staggering growth, lingering issues concerning unstable liquidity threatens to upend a decade of progress. TABB research demonstrates that the market has a macrostructure issue that needs to be solved – a dependency on principal-risk trading.  Until market participants abandon their quasi-addiction to asking for and receiving immediacy (“on-demand” liquidity) from a select few market-makers, no bounty of trading protocols can solve the liquidity dilemma, which most market participants believe will not rear its ugly head until such time that the market is forced to deal with a prolonged stress event.

In this Market Note, Principal-Risk Trading in US Corporate Bonds: The Liquidity Dilemma, TABB Group examines the complex yet fundamental market structure mechanisms that shape how US credit is traded today and what that means for tomorrow.