Corporate Bond Trading: Finding the Customers' Yachts

Corporate bond trading is evolving. Dealers, long central to bond trading, still play a critical role, but new technologies have created more competitive and transparent markets. There are fewer dealers now, and market concentration has increased, but execution costs are far lower than in the past, and bond market volume has soared. Small bond trades now execute at approximately the same transaction costs as large block trades. Yet, although corporate bond markets are better, they are not perfect. Match making as opposed to market making leaves the bond market susceptible to periodic illiquidity. Bond issues more subject to information leakage or those that are highly illiquid still trade almost entirely with dealers. There is still limited pretrade transparency, which hurts bond customers both large and small. Overall, however, bond markets are better.