Updated October 2022

Market liquidity dropped overall in Q3, with USD IG hitting new lows last seen at the onset of the pandemic

Liquidity in credit markets continued to decline in Q3, particularly in the HY space. USD HY dropped to levels last seen towards the end of 2020, widening the gap to USD IG after a period of convergence in the last quarter. Market liquidity in HY GBP fell to levels last observed in May 2022, while EUR HY registered a moderate decline in comparison. As regards IG corporate bond markets, liquidity levels in GBP and EUR remained rangebound. However, USD IG liquidity continued to follow a downwards trajectory, hitting a low last seen at the beginning of the COVID pandemic in 2020. 

The decline of corporate bond market liquidity appears to be linked to a number of factors, including: (i) rising interest rates to tackle inflation in major economies, led by the Federal Reserve; (ii) Russia’s invasion of Ukraine, which has led to a steep rise in energy prices adversely impacting the real economy; (iii) spill-over effects from a deteriorating economic outlook into financial markets; (iv) geopolitical tensions resulting in increased market fragmentation which may become entrenched; (v) widening credit spreads and increased volatility during the last two months; amongst other factors.

ICE Liquidity IndicatorsTM

ICE Liquidity IndicatorsTM are designed to reflect average liquidity across global markets. The ICE Liquidity IndicatorsTM are bounded from 0 to 100, with 0 reflecting a weighted-average liquidity cost estimate of 10% and 100 reflecting a liquidity cost estimate of 0%. The ICE Liquidity IndicatorsTM are directly relatable to each other, and therefore, the higher the level of the ICE Liquidity Tracker the higher the projected liquidity of that portfolio of securities at that point in time, as compared with a lower level. Statistical methods are employed to measure liquidity dynamics at the security level (including estimating projected trade volume capacity, projected volatility, projected time to liquidate and projected liquidation costs) which are then aggregated at the portfolio level to form the ICE Liquidity IndicatorsTM by asset class and sector. ICE Data Services incorporates a combination of publicly available data sets from trade repositories as well as proprietary and non-public sources of market colour and transactional data across global markets, along with evaluated pricing information and reference data to support statistical calibrations.

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