On the heels of earlier research on the provincial bond markets, the Bank of Canada has released a report on corporate bond markets, which finds that liquidity is not disappearing, as some market watchers claim.
Indeed, the report finds “evidence that, since 2010, the liquidity of Canadian bonds has improved and that trading activity has remained stable.”
Liquidity has improved for higher-rated bonds, while remaining stable for riskier bonds.
“We also find that the liquidity and trading activity of bonds issued by banks have improved since 2010, whereas these measures have been stable for other corporate bonds,” researchers state in a staff analytical note.
Although there has been periods of reduced liquidity, these have proved temporary, the research finds. For instance, the most serious drop in liquidity occurred after oil prices fell in 2014–2015, but that the decline in bond liquidity was over by the end of 2016.
“Our findings are consistent with previous work… showing that the liquidity and trading activity of Government of Canada (GoC) and provincial bonds have been generally stable since 2010, “ the report states.
“These findings do not support the notion that the liquidity of the Canadian corporate bond market has significantly deteriorated in recent years,” the report concludes.