Concern about liquidity shortfalls at year end could be alleviated by electronic market makers say traders, and the data seems to back them up, writes The Desk.
A seasonal shortage of liquidity at year end is often attributed to the withdrawal of dealer activity as they optimize their holdings of risk assets. The quarterly reporting of capital ratios to regulators creates a skewing of activity away from capital intensive work at quarter end. This ‘window dressing’ is a longstanding issue, and can impact market liquidity.
However, changes to market liquidity provision, driven by participation from electronic liquidity providers and increased month end activity through portfolio trading, appear to be mitigating the effects of this liquidity shortfall.
While dealer inventory typically reduces at quarter end in corporate bond markets, electronic trading volumes for corporate bond trading have continued to rise in 2024, with platforms including MarketAxess Tradeweb and Trumid all growing market activity levels.