Another Sign Liquidity Is Drying Up

As regulatory burdens have pared back the appetites of large banks and primary bond dealers in the “off-the-run” US Treasury market, bond liquidity has suffered and transaction costs, most notable in wider bid-ask spreads, have increased. Institutional investors in the $14 trillion government debt market are looking for alternatives, Greenwich Associates Kevin McPartland notes in a recent report. [buffett] As adjustments to Dodd-Frank regulations get considered in Washington DC, charges that the negative impact from the Volcker Rule has resulted in less market liquidity swirl. A recent Bank of America Merrill Lynch report, for instance, predicted that the corporate bond market…