tadamichi/iStock via Getty Images Liquidity has moved to the center of investing conversations in recent months. Corporate direct lending, a subset of private credit, has drawn scrutiny as investment vehicles often promise monthly or quarterly liquidity while owning assets that are, in practice, difficult to exit. Headlines about redemption limits in private credit funds underscore that this is no...
tadamichi/iStock via Getty Images Liquidity has moved to the center of investing conversations in recent months. Corporate direct lending, a subset of private credit, has drawn scrutiny as investment vehicles often promise monthly or quarterly liquidity while owning assets that are, in practice, difficult to exit. Headlines about redemption limits in private credit funds underscore that this is no longer a theoretical risk. Against that backdrop, there has been a persistent and parallel debate about liquidity in public credit markets, where corporate bonds are bought and sold. Critics – often managers touting private credit – have argued that primary dealer banks hold fewer corporate bonds than they once did and that trading is concentrated within a subset of newer bonds. Supporters counter that advances in trading technology and market structure continue to improve liquidity. The data strongly support the latter view. Across multiple, complementary measures of depth, breadth, and transaction costs, public corporate bond markets appear healthier today than at any point since the global financial crisis (GFC). Using the right yardsticks There is no single definition of market liquidity, but it is commonly understood as the ability to buy or sell an asset quickly, in size, and at prices reflecting fundamental values. There are three main components: Depth: Can the market absorb trades without large price moves? Breadth: Is trading activity dispersed across securities? Transaction costs : What is the price of immediate execution? We can quantify these components using transaction-level data from the TRACE database 1 . First, to capture depth, we use the Amihud illiquidity measure 2 . In plain English, it shows the average price change associated with one dollar of trading volume. While this fluctuates with volatility, it has remained well-behaved – across investment grade (IG) and high yield (HY) markets alike – and is near the low end of its historical range (see Figu...
The cost of hedging against swings in a key Indian banking gauge relative to the broader market has surged, as traders brace for the central bank’s rate decision as well as a potential escalation in the Middle East war. The gap between the implied volatility of the NSE Nifty Bank Index and the India NSE Volatility Index has widened to nearly eight points — the highest since December 2022 — signali...
The cost of hedging against swings in a key Indian banking gauge relative to the broader market has surged, as traders brace for the central bank’s rate decision as well as a potential escalation in the Middle East war. The gap between the implied volatility of the NSE Nifty Bank Index and the India NSE Volatility Index has widened to nearly eight points — the highest since December 2022 — signaling stronger demand for protection in rate-sensitive financial stocks. The spike in hedging costs highlights growing investor concern over how a mix of external shocks and domestic policy will shape India’s financial sector, which has been a key driver of equity markets. Banks tend to be more directly impacted by interest-rate expectations, liquidity conditions and currency pressures, making them particularly sensitive ahead of monetary policy decisions. The fallout from the Iran conflict and its impact on crude prices and currency stability is also adding a layer of uncertainty to markets. “The volatility expansion reflects markets hedging global geo-political event risk first and only secondarily adjusting for policy signals at home,” said Sahaj Agrawal , head of derivatives research at Kotak Securities Ltd. President Donald Trump has said that if a deal isn’t reached by his Tuesday deadline, the US military could destroy key Iranian infrastructure, including power plants and bridges. The threat is weighing on investor sentiment, while Indian bank stocks may face further pressure as the central bank defends the rupee, tightening domestic liquidity conditions. Read More: Indian Bank Stocks’ $95 Billion Rout May Deepen, Analysts Say The Reserve Bank of India is likely to hold rates steady on Wednesday as it balances competing pressures. A sharply weaker rupee and the risk of imported inflation argue for tighter policy, while slowing growth dynamics call for continued support. Against this backdrop, options markets are reflecting a wider distribution of potential outcomes, wi...