Credit Suisse recently pointed out that the latest decline in global issuance of corporate bonds likely drove decreases in bond trading volumes. This has been observed in certain equity markets as increased IPO activity boosts overall volumes. The dynamics in credit seem to be oriented around inventories. With the overall declines in dealer inventories, trading desks concentrate their activities around new issue bonds. Even under the Volcker rule, temporary positions to facilitate new issue will be permitted. Secondary markets positions however are expected to be curtailed. And limited inventories translate into less trading and less liquidity. As the charts below show, daily trading volumes in the HY market declined with the drop in HY issuance.
This relationship between new issuance of bonds and bond trading volumes wasn't as pronounced last year. Fear driven liquidations by portfolio managers may have kept the volumes up even with little new issue in August and September. But as secondary market inventories tighten, the expectation going forward is that trading volumes will increasingly depend on the sizes and volumes of newly issued bonds.