Bonds Without Price Quotes

Paul Kedrosky has found a Greenwich Associates report saying that "more than 60% of participants active in corporate bonds say they have experienced trouble getting a simple price quote from dealers on these usually liquid products". Is this, as he says, "an eye-opening statistic on the credit crunch"?

On its own, I think the answer is no. If we could compare the 60% number in a time series with the answer to the same question at various more liquid times, then it would be more useful.

Even then, however, one would expect that most bond investors own one or two issues which are likely to suffer from illiquidity when credit markets seize up as they did this summer. They (should) expect as much. It's not like anybody's saying that 60% of corporate bond issues are suffering from illiquidity, or even 6%. Anybody who invests in corporate bonds knows that they're investing in an asset class which suffers in any flight to liquidity or quality. And during a credit crunch, there's really no such thing as "a simple price quote".

Besides, with the advent of the CDS market, you don't actually need a price quote in order to hedge your positions in corporate bonds: you can just buy credit protection instead. So I think there's less to this particular datapoint than meets the eye.