Almost three quarters of buy-siders say dealer risk appetite is having a negative impact on their ability to source corporate bond liquidity, according to research by Woodbine Associates.
The research adds weight to speculation that investors are struggling with fixed income liquidity, but also suggests that some of the potential solutions are not effective enough.
When asked to assess different venues for non-dealer liquidity, 29% felt that crossing networks, where buy-siders trade with each other, were ineffective as a means of providing liquidity.
There has been much fanfare over the development of all-to-all crossing networks for the buy-side, but Woodbine’s research shows a significant number of firms are not finding the liquidity they need on these venues.
Multi-dealer platforms were found to be the most successful venues, with 72% of firms surveyed saying they were effective or very effective for sourcing corporate bond liquidity.
Woodbine also discovered that a large number of firms (60%) expect to have to execute multiple small bond transactions instead of block trades as a result of declining dealer liquidity.
The breaking up of block trades could potentially result in higher costs for firms to trade bonds and could conflict with the desire to achieve best execution in fixed income.