Does anyone know why small size bond issues are less liquid?
If I were to venture a guess, which is all this is - I’d say it’s because small bond issues come from small companies, which are unlikely to be on most investors’ radar.
because theres less of that issue outstanding…so fewer bonds trade back & forth
I am still not following you guys why would small issues come from small companies. Doesn’t make any sense to me intuitively. Why can’t big companies have small size issues? And even though there are fewer issues outstanding, they could be traded heavily.
big companies can have small size issues. It’s the size of the issue that matters not the size of the company.
so size is the only factor which matters, not the trade volume and transactions?
size is precisely what affects trading volume/liquidity. If there is more of that issue out there, thats more liquid right?
AndrewUNH Wrote: ------------------------------------------------------- > size is precisely what affects trading > volume/liquidity. If there is more of that issue > out there, thats more liquid right? Rather than talking in the air let’s put some numbers here. I think we are discussing about bond of small size issues(notional amount $1000) are less liquid than large size issues($10000). Do you agree? now what do you mean by more out there? Is it number of bonds( in this example number of $10000 bonds)are more, or because the weight of these bonds is more than compared to slim $1000 bonds?
it could be both dollar amount and/or # of bonds. I think you get the idea. Liquidity risk is a problem if there are a few # of bonds for that issue that don’t trade frequently. Find me an EOC problem or something and we can tackle it that way
When people talk about large issue sizes being more liquid they mean the total amount of the bonds outstanding. Eg if company A sold $100 million of bonds, and company B sold $5 million of bonds, A’s will be more liquid (everything else being equal). Liquidity represents how easy it is to buy and sell something. obviously if I want to buy company B’s bonds it is going to be harder to find someone to sell them to me. Likewise, if I own them and want to sell, they are such a small insignificant line of bonds that it’s less likely someone’s going to want to buy them (keep in mind many bond fund managers are benchmarked against an index so will tend to hold more of bonds that are a bigger part of the index). Hope that helps
@Kiakaha…now it makes more sense…Nice explanation Thanks!