Shifting Tides – Market Liquidity and Market-Making in Fixed Income Instruments

BIS Quarterly Review, March 2015

13 Pages Posted: 28 Mar 2015

See all articles by Ingo Fender

Ingo Fender

Bank for International Settlements (BIS)

Ulf Lewrick

Bank for International Settlements (BIS) - Monetary and Economic Department; University of Basel - Faculty of Business and Economics

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Date Written: March 18, 2015

Abstract

Drawing from a recent report by the Committee on the Global Financial System, we identify signs of increased fragility and divergence of liquidity conditions across different fixed income markets. Market-making is concentrating in the most liquid securities and deteriorating in the less liquid ones. The shift reflects cyclical (eg changes in risk appetite) as well as structural (eg tighter risk management or regulation) forces affecting both the supply of and demand for market-making services. Although it is difficult to definitively assess the market implications, we outline several possible initiatives that could help buttress market liquidity.

Keywords: market liquidity, market-making, fixed income markets

JEL Classification: G14, G21, G23

Suggested Citation

Fender, Ingo and Lewrick, Ulf, Shifting Tides – Market Liquidity and Market-Making in Fixed Income Instruments (March 18, 2015). BIS Quarterly Review, March 2015, Available at SSRN: https://ssrn.com/abstract=2580741

Ingo Fender

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

HOME PAGE: http://www.bis.org

Ulf Lewrick (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

University of Basel - Faculty of Business and Economics ( email )

Petersplatz 1
Basel, 4001
Switzerland

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