Liquidity Deterioration in the U.S. Corporate Bond Market
As a result of increased banking regulations, U.S. primary dealers’ positions of corporate securities, including commercial paper, investment grade, and high-yield corporate bonds, have declined substantially from the peak of $260 billion in 2007 to the current level of $68 billion. This reduction in bond inventories could prove to have a negative impact on market liquidity. Investors may have difficulty unwinding their positions amid rising interest rates, as dealers shrink their corporate bond holdings, pushing bond yields higher.
U.S. PRIMARY DEALER POSITIONS OF CORPORATE SECURITIES*