NEW YORK--(BUSINESS WIRE)--Emerging market (EM) high-yield corporate bonds trade far less frequently in the U.S. than comparable bonds issued by U.S. companies, according to a recent Fitch Ratings study. Robust trading data sources provide a useful window into U.S. market liquidity, but any efforts to extend the analysis globally are limited by reduced transparency in other jurisdictions.
Several market participants have pointed out that EM corporate bond trading follows different patterns in markets outside of the U.S., principally London. As an example, London trading for Russian corporate issues is likely to be far greater than trading in Latin American bonds, while Latin American bonds trade more frequently in the U.S. Latin American company bonds in our sample traded on average 92% of days in the U.S. between June 30, 2014 and March 31, 2015. The comparable figure for Russian names was 39%.
This is an important point and one that is difficult to address as the amount of publically available information on trading volume outside the U.S. is not uniformly available as is the FINRA TRACE data. A more comprehensive study on global EM trading frequency would require similar data sources internationally.
Fitch believes a study of U.S. trading and liquidity offers valuable insights generally, given the size, depth and signaling power of U.S. markets. Such an approach, however, cannot capture regional trading differences in other trading centers where significant volumes of EM corporate bonds trade.
This raises interesting questions about relative transparency of activity in different markets that could meaningfully impact liquidity. Fitch welcomes efforts such as those already underway in the European Union to enhance post-trade transparency in the bond market. This would allow participants to be better informed about how these patterns compare and what it may mean to liquidity and pricing under adverse scenarios.
Fitch's report, "Emerging Market Bond Liquidity (US Trading of EM Corporate Bonds Trails US High Yield)," can be found at www.fitchratings.com or by clicking on the link.
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
Emerging Market Bond Liquidity (US Trading of EM Corporate Bonds Trails US High Yield)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864220
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