Liquidity in Euro Corporate Bonds Deteriorates

This image has an empty alt attribute; its file name is OVERBOND.png

Source: MarketsMedia

MarketsMedia recently highlighted Overbond’s Corporate Bond Intelligence (COBI) showing drastically widening spreads in multiple sectors. The widening indicates declining liquidity, creating challenges for traders and companies to raise capital through debt issuance.

“Conditions in European corporate bonds paint a grim picture. Market conditions have declined noticeably, even in sectors such as utilities that investors have traditionally seen as safer. This is a huge concern for corporate issuers, who will feel the effects of higher yields as they struggle to entice buyers,” said Vuk Magdelinic, CEO, Overbond.

“If spreads continue to widen, financial conditions tighten and volatility remains high, the ECB will need to consider whether the deterioration in corporate bond liquidity warrants measures to shore up markets to stave off financial distress. Until then, corporate bond traders must ensure they’re getting the wide data coverage they need to create the full picture of market conditions that’s necessary to achieve best executable pricing,” Vuk Magdelinic added.

As of October 20th, spreads in the real estate sector had widened the most, with a change of almost 200 bps, followed by utilities, which widened by 109 bps, materials (98 bps), and consumer discretionary (92 bps). The energy and information technology sectors saw the lowest decline in liquidity, widening by 45 bps and 41 bps, respectively. Corporate bond spreads in all sectors widened more than Euro-denominated government bonds, which widened by only 21 bps.

Overbond’s COBI platform uses AI algorithms to analyze pre- and post-trade data across numerous electronic venues and the settlement layer at Euroclear and Clear stream to form a liquidity score for corporate bonds.