One of the main challenges for investors is to address the liquidity as new factor and new type of volatility regime. Awared investors should be sure that chosen infrastructure has the capabilities to aggregate the right information, to clean the lab, to analyze the noise versus the trends, to reconfigure in quasi real-time our automation workflow and to take into consideration the evolution of the noise.
Senior advisors should provide smart content and smart intelligence to portfolio managers, to educate them, to explain to them that the market can change condition and that means that they as manager can execute change”. Because portfolio managers can be more aggressive in another book, or aggressive in the market to sweep the liquidity, thinking that the price action can move away from attractible conditions. And this kind of metric should be normalized.
A more comforting message came from the sell-side, at least in developed country credit and rates markets. Product innovation, technology and new market entrants are boosting bond liquidity. But buy-side firms question what this means for them. Talking to the sell-side, bond liquidity has entered a new golden age. Electronic trading platforms have allowed new entrants such as large asset managers to grab market share from traditional bank incumbents, offering algo-driven solutions. Yet the buy-side is sceptical, particular since relationships with bank primary desks and syndicates need to be preserved. Now the liquidity is in the eyes of the beholder. Meanwhile, exchange-traded passive bond funds offered large fixed income baskets to be constantly rebalanced, providing a new source of liquidity for the market.
