The European investment grade corporate bond secondary market & the COVID-19 crisis
May 2020

This report documents the performance of the investment grade secondary bond market in Europe during the last weeks of February through March and April 2020, as the COVID-19 pandemic caused levels of  market volatility and dislocation surpassing those seen during the global financial crisis of 2007-2008. The report is based on market data as well as interviews and surveys of buy-side and sell-side market participants.

Among its findings, the report indicates that during the peak of the crisis, participants resorted to voice trading when the market became too volatile and too illiquid for dealers to risk providing pricing across electronic platforms. While many banks did continue providing liquidity and market-making via voice or messaging, overall dealer capacity appears to have shrunk at a time when it was needed most. Large trading volumes were however recorded through electronic platforms, using different trading protocols, for example processed trading where a price is agreed on the phone or messaging and then ‘consummated’ on a system.

There was a sizeable but temporary increase in settlement fails during the height of the crisis. This is largely attributed to the operational challenges of the relevant teams transitioning to remote-working at a time when overall trading volumes were significantly above average. This increase in structural settlement fails has accentuated concerns in the market about the EU’s CSDR mandatory buy-in provisions, due to come into force in early 2021, and raises questions as to how this would have impacted the market had it been in place during the COVID-19 turbulence.

Listen to Andy Hill's Podcast on the report.

Time to act: ICMA’s 3rd study on the state of the European investment grade corporate bond secondary market
March 2020

ICMA’s third study into the state and evolution of the European investment grade corporate bond secondary market. Based on quantitative market data, stakeholders surveys, as well as in interviews with market participants, the study looks at the current state of market liquidity; the evolution of market structure; and participants’ expectations for future developments in the market. It compares market conditions and developments since the previous 2016 study, as well as the 2017 reports of the European Commission’s Expert Group on Corporate Bond Markets.

The study concludes that secondary market liquidity conditions remain challenged, and have deteriorated since 2016. It also examines the key trends and developments in market structure over the past three years, including evolving market behaviour and the adoption of new trading protocols, as well as the impacts of regulation and monetary policy. Looking forward, it identifies potential opportunities through new technologies and the use of data, as well as further challenges to liquidity, not least as a result of higher capital charges for market makers, as a result of the Fundamental Review of the Trading Book (FRTB), and the implementation of the Central Securities Depositories Regulation (CSDR) mandatory buy-in regime. The report encourages policy makers, regulators, and stakeholders to build on the work undertaken by the European Commission’s Expert Group in order to prevent further declines in market liquidity and to ensure the continued development of Europe’s corporate bond market.

The Asia-Pacific Cross-Corporate Bond Secondary Market - A report on the state and evolution of the market
August 2018

ICMA has published a report on the state and evolution of the Asia-Pacific cross border corporate bond secondary market. While the report is primarily focused on G3 (USD, EUR, GBP) denominated bonds of non-financial and financial corporate issuers, as defined by having the issuer country of risk within the APAC region, it also explores the ongoing internationalisation of local currency markets, in particular the Chinese market.

The report highlights the rapid rise in issuance and the size of the G3 (in particular USD) corporate bond market since 2011, which has accelerated in the past two years driven primarily by Chinese financial and non-financial issuers coming to the market. From 2011 to 2017, annual G3 APAC corporate issuance has more than trebled to over USD 930bn, with Chinese names accounting for more than 40% of total issuance in 2017, compared with less than 20% in 2011. The report sets the size of the market at May 2018 at approximately 8,500 outstanding issues with a nominal value of almost USD 2.5 trillion.

The European Corporate Single Name Credit Default Swap Market - A study into the state and evolution of the European corporate SN-CDS market
February 2018

ICMA has published a report on the current state and evolution of the European corporate single name credit default (SN-CDS) market, focused on its benefits for liquid and efficient corporate bond markets.

The report is based on interviews with market participants, including buy-side users, as well as extensive data and quantitative analysis. It sets out to map the state of the market, establishing who are its main users and what benefits and risks are associated with the product. Concentrating on the European corporate SN-CDS market it looks at where and how liquidity is provided, and the related costs and challenges of the CDS product.

European Commission study confirms declining liquidity in European corporate bond secondary markets
November 2017

A report published by Risk Control into the Drivers of Corporate Bond Market Liquidity in the European Union confirms observations of ICMA and others that liquidity in the European corporate bond secondary markets has been in serial decline over the past several years. The study, which was prepared for the European Commission as part of its work on developing the European corporate bond market under CMU, aims to provide a thorough analysis of the factors that influence market liquidity in corporate bonds, both financial and non-financial. It considers both cyclical factors that drive liquidity and changes underway in the European corporate bond market, including the development of new trading mechanisms. The report was published in parallel with the reports of the European Commission’s Expert Group on European Corporate Bond Markets.

ICMA’s response to IOSCO’s consultation paper on Regulatory Reporting and Public Transparency in the Secondary Corporate Bond Markets
16 October 2017

ICMA’s response to the IOSCO consultation paper largely focuses on members’ concerns related to the imminent implementation of the MiFID II/R pre- and post-trade transparency regime and the potential implications for European secondary corporate bond market liquidity.

ICMA European Credit Repo Market Study
22 June 2017

ICMA publishes The European Credit Repo Market: The cornerstone of corporate bond market liquidity which explores and describes the state and evolution of the European corporate bond repo and securities lending market (the ‘credit repo market’). The study builds on ICMA’s previous work with respect to both corporate bond market and repo market evolution and liquidity, and investigates the European credit repo market from the perspective of its role, structure, participants, dynamics, external impacts, challenges, opportunities, and potential evolution, particularly to the extent that this plays a pivotal role in overall corporate bond market liquidity.

Times they are a-changin’: the corporate bond market liquidity conundrum and the changing buy-side paradigm
November 2016

While various market, authority, and academic studies and their conflicting conclusions continue to add more fuel to the fire of the liquidity debate, raising questions about the appropriate way to define and measure market liquidity, what becomes clear is that regardless of who might be right, buy-side firms are having to rethink their business models as they adapt to a rapidly evolving market environment, with very ‘different’ liquidity conditions. This article by ICMA’s Andy Hill, draws on the July 2016 ICMA study of secondary bond market liquidity, particularly with respect to the interviews and survey of asset managers and institutional investors, to discuss this changing buy-side paradigm. In particular, it highlights how buy-side firms are embracing e-trading solutions and ‘big data’ to help re-shape the market structure.

The article can be found here

On 30 September 2016, ICMA was pleased to submit its response to the IOSCO Consultation Report: Examination of Liquidity of the Secondary Corporate Bond Markets.

ICMA very much welcomes IOSCO’s interest in the functioning and liquidity of the corporate bond markets and the resulting Consultation Report, as well as the opportunity to provide suggestions and data to assist IOSCO in further refining its analysis. While the general conclusions of ICMA’s analysis of the European corporate bond market and IOSCO’s more global perspective may differ in a number of respects, based on its own work, ICMA fully appreciates the challenges of sourcing comprehensive and meaningful data, as well as identifying and assessing the relevant indicators and metrics.  

ICMA was therefore pleased to provide, in consultation with the members of its Secondary Market Practices Committee, a number of constructive and targeted recommendations designed to expand and enrich IOSCO’s analysis.

The response can be found here.

ICMA has published two studies based on in depth interviews with market participants represented by ICMA, including investors, issuers, banks and broker-dealers, intermediaries and infrastructure providers, looking at the challenges faced by the European investment grade bond market and how the market is adapting to rapid change driven by extraordinary monetary policy and unprecedented regulation. Both focus specifically on liquidity.

Both studies are initiatives of ICMA’s Secondary Market Practices Committee.

The current state and future evolution of the European investment grade corporate bond secondary market: perspectives from the market, was published in 2014.

In July 2016 ICMA published a further study ‘Remaking the corporate bond market’ exploring the evolution of the European investment grade corporate bond market and updating the earlier research. It adds quantitative input to the in-depth interviews with market participants and provides recommendations to support the long-term efficiency and functioning of the market.

Since the first ICMA study, the conversation around bond market liquidity, and its potential implications, has entered mainstream thinking, particularly when assessing market risks or explaining market behaviour. The conclusions of a range of recent market studies have been mixed, with most suggesting that market conditions, in general, are becoming more challenged, while a number of more academically-based studies published by authorities and regulators tend to be more confident. Understanding the reasons for this apparent divergence of perspectives is one of the motivations for this second study.

The main findings from the new ICMA study are:
  • Providing and sourcing liquidity is more challenging. Market participants cite the causes of this as the interaction of various regulatory initiatives and extraordinary current and future monetary policy, and the undermining of the market-making liquidity model, largely due to greater capital constraints on banks and broker-dealers. It is increasingly difficult to trade in large sizes, to execute orders quickly, or to establish reliable prices.
  • European corporate issuers are increasingly concerned about the state of the corporate bond secondary market. They note an unsustainable disconnect between primary market stability and secondary market liquidity that is being perpetuated primarily as the result of ongoing central bank intervention. This directly impacts their ability to raise capital necessary to fund investment.
  • Stakeholders are in the process of adapting to the challenged environment by changing their business models. While sell-side firms continue to reshape their models around balance sheet efficiency, acting more as principal brokers than market-makers, the buy-side is taking more initiative in terms of locating and creating liquidity. Technology is playing an increasingly important role in the market, there is growing recognition that a significant part of the market will always need to be ‘people based’, and so values such as trust and relationship building are becoming ever more important as market conditions becomes more challenged.
Based on the stakeholder interviews the study makes a number of recommendations, which could improve the long-term efficiency and functioning of the European corporate bond markets.
  • Provide capital relief for market-making. Given the heterogeneous and inherently illiquid nature of credit markets, the market-making model is the optimal, and perhaps the only viable, source of true market liquidity. Policy makers and regulators should at the very least consider the possibility for less stringent capital charges related to this activity, including associated hedging and financing.
  • Revitalize the single-name CDS market. Single-name CDS not only provide an efficient and standardized tool for market-makers and investors to hedge credit exposures, but given its close relationship with the underlying reference bonds, an active and liquid single-name CDS market could help stimulate liquidity in the corporate bond market. Measures to revitalize the market could include reviewing CVA capital charges and NSFR funding requirements under CRD IV/R.
  • Review and re-assess harmful regulation. It becomes clear that there are a number of regulatory initiatives that seem to offer no obvious benefits to fixed income markets, and, in certain cases, are likely to cause significant harm.
  • Bring all market stakeholders together to review the market structure. All market stakeholders, including investors and asset managers, corporate issuers, banks and broker dealers, intermediaries and infrastructure providers, relevant market associations and representative bodies, as well as policy makers and regulators, need to work together in a formalized and structured forum to share views and ideas on market structure and development.
The data collection for this study predates the referendum on the United Kingdom’s membership of the European Union on 23 June 2016. The outcome may well have serious implications for corporate bond markets, in particular the sterling market, but also for the euro and other markets. In many ways, this makes the findings and conclusions of this study even more relevant, as we enter a period of even greater economic uncertainty, and when market efficiency and liquidity will, potentially, be tested.


Andy Hill
Senior Director, Market Practice and Regulatory Policy; secretary to the Secondary Market Practices Committee and also responsible for overseeing repo policy.
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