MSCI has revealed that the liquidity of corporate investment-grade and high-yield bonds, as well as sovereign bonds, has deteriorated.
It noted that the transaction cost shocks are now more than twice as severe as during the December 2018 high-yield sell-off.
MSCI has also observed a drop in market maker activity. The average number of dealers quoting an instrument and the average number of daily quotes have both decreased, it said, however, there was only a moderate decrease in the average quoted sizes.
The price uncertainty has reached extreme levels and there is a very high variance in the prices quoted by dealers.
Amid a worsening coronavirus crisis, MSCI Research has found that liquidity conditions for major European sovereign bonds have deteriorated drastically, although they were better than US Treasuries.
Within Europe, Germany and the UK have been relatively resilient, when looking at two indicators:
- the evolution of daily median bid-ask spreads in the year to date; and
- the price uncertainty — as measured by the daily median of the standard deviation of quoted prices (see charts below), it said.