How Post-2008 Financial Regulations Impacted Corporate Bond Liquidity

Abstract: We review empirical findings regarding the impact of post-2008 financial regulations on the liquidity of corporate bond markets in the U.S. We first show that traditional measures of market liquidity improved in recent years. At the same time, the cost of illiquidity also increased. We then discuss findings showing that — after the regulations were implemented — dealer capital commitment, trade frequency and size decreased, while dealer bid-ask spread increased. The increase in dealer bid-ask spread is compensated by a change in the composition of the liquidity provision. Liquidity is increasingly being provided by customers instead of dealers.

Keywords: corporate bonds; liquidity;

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Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2022-02

Volume: 22

Issue: 05