My colleague Shobhit Gupta has calculated bid-ask spreads for investment grade (IG) bonds based on trader quotes, see chart below.
Liquid securities are defined as $1 billion-plus deals issued in the past year. Off-the-run bonds are those issued more than two years ago with deal sizes less than $900 million, and these bonds make up 50% of the IG market by count.
The chart shows that bid-ask spreads have spiked post the April 2 tariff announcement.
The gap between liquid and illiquid bonds is particularly noteworthy. In 2020, the bid-ask spread widened across the whole market. But this time around, transaction costs have increased materially more for off-the-run paper. This highlights the growing liquidity divide in the public IG market. Liquidity in on-the-run bonds has improved, but off-the-run paper has become virtually untradeable and effectively a buy-and-hold investment.
Note: Chart shows estimated bid-ask for IG bonds based on trader quotes. Liquid securities defined as $1 billion-plus deals issued in the past year. Off-the-run bonds are those issued more than two years ago with deal size <$900 million. (These bonds make up 50% of the IG market by count.) Sources: Shobhit Gupta, Apollo Chief Economist
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