A data tool to help investors assess the liquidity of fixed income assets has been launched by Euroclear in collaboration with Lyxor Asset Management.
It follows increasing concerns over reduced liquidity in the bond markets as a result of quantitative easing by central banks and the introduction of tougher bank liquidity buffers.
The e-Data Liquidity tool is designed to help bring more transparency to fixed income liquidity and will be available to institutional investors including pension funds and asset managers.
It uses raw factual settlement data from Euroclear, a post trade services provider which captures around 50% of European domestic markets and 65% of Eurobonds activity. It helps to assess the liquidity of an asset through demonstrating volume traded by size and number of participants.
Measuring liquidity can be particularly challenging for bonds, which mainly operate over-the-counter and are much less transparency than other markets such as equity.
Euroclear global head of funds and capital markets Stephan Pouyat said: "The current market climate is prompting investment managers, treasurers, risk managers, insurers, collateral takers, central counterparties and other buy-side institutions to better manage their asset portfolios and strengthen their balance sheets, including liquidity buffers.
Lyxor co-head of sovereign bonds investments Jean Sayegh said the firm had explored existing data tools that give information on the fixed income markets to help assess liquidity but found they were not adequate for its needs. For example some tools are based on price and bid/ask spreads which Sayegh said are no longer indicative of liquidity levels.
There is an imbalance in the market where there is not enough new issuance in order to meet the higher demand resulting from a number of factors including the European Central Bank's purchase programme, bank liquidity buffers, and investors trying to park their cash.
Through monetary policy central banks are pumping cash into system but also retrieving assets from the system, and therefore fewer assets are in circulation which represents less liquidity.
High quality liquid assets are also being pumped out of markets by banks to put on their balance sheets in order to meet the liquidity capital ratios, while new market regulations are leading market makers to increasingly become brokers.
Liquidity planning was highlighted as an important consideration for maturing defined benefit schemes in the Pension Regulator's 2016 funding statement.
It said "market developments may mean schemes are forced to sell assets at lower than expected prices in order to meet cash flow demands. This could put increased pressure on the scheme's funding plans and on the sponsor for higher contributions over a shorter period than anticipated, affecting their plans for sustainable growth."
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