Liquidity in Euro-denominated corporate bond markets has deteriorated considerably since January 1^st, 2022, according to proprietary data from fixed income analytics provider Overbond.

In addition to price volatility and rising yields, Overbond’s Corporate Bond Intelligence (COBI) platform shows that spreads are widening drastically in multiple sectors. This widening indicates declining liquidity and creates challenges for traders and companies seeking to raise capital through debt issuance.

As of October 20^th, 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.

“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 of 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,” he added.

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

Source: Overbond