Corporate-bond investors have struggled this week to find trading partners for some large orders, causing unusual price drops and raising concerns that trading could freeze in future market turmoil, the Wall Street Journal reported today. Many large banks have reduced bond inventories in recent years in response to new capital rules and other measures. Traditionally, large banks and brokerage firms have acted as middlemen in the bond market, matching buyers and sellers and sometimes buying and selling from their own holdings to keep trading going. Their pullback now is playing out in the market, along with other factors such as diminishing Federal Reserve purchases of bonds, declines in stock and commodity prices and investor concern over economic data, the Ebola virus and geopolitical tumult. Trading is far from frozen, but choppy conditions have spooked investors. A pullback by banks is leading to a “quest for liquidity,” said Scott Colyer, chief executive of Advisors Asset Management Inc., which oversees $15 billion.
