Barclays_The_equitification_of_credit_Illiquid_no_more

This document is intended for institutional investors and is not subject to all of theindependence and disclosure standards applicable to debt research reports prepared for retailinvestors under U.S. FINRA Rule 2242. Barclays trades the securities covered in this report for itsown account and on a discretionary basis on behalf of certain clients. Such trading interestsmay be contrary to the recommendations offered in this report.(vi) This author is a member of the Fixed Income, Currencies and Commodities Researchdepartment who may also publish equity researchPlease see analyst certifications and important disclosures beginning on page 9.The equitification of creditIlliquid no moreSince 2015, US IG liquidity has soared – nontraded bonds aredown 20x monthly, 8x weekly, 3x daily – as ETFs, algos andportfolio trading drive the equitification of credit. Systematicstrategies are rising, but the illiquidity premium that oncedrew pensions and insurers to public markets is gone.We appreciate your 5-star vote in the 2025 Extel Global Fixed-Income Research Survey in theGlobal → Fixed-income strategy & Macro Strategy category. View our analysts »  Vote 5Stars for Barclays »• US IG corporate bond liquidity has improved dramatically over the past decade. Since2015, the share of nontraded bonds has dropped c. 20x monthly, 8x weekly, and 3x daily.Larger trades have also become easier to execute – monthly nontrading rates in the $1–5mnrange have halved, and even block trades (greater than $5mn) have shown meaningful gains.• Three forces are driving the liquidity shift: the rise of ETFs, the growth of electronictrading and the expansion of portfolio trading. Together, they reflect the equitification ofcredit, where credit markets increasingly behave like equities. • ETF create-and-redeem activity now accounts for over 8% of monthly bond cashvolumes – double the share in 2013 – injecting steady liquidity throughout the month.While ETFs aid price discovery and month-end volumes for the underlying bonds, we think itis the primary create and redeem mechanism that most effectively reduces nontraded bondsby driving continuous trading, as investors actively buy bonds for creations and sell thosereceived in redemptions.• Half of US IG trading is now electronic, up from 30% in 2018. Adoption has been strongestin smaller trades (under $1mn), where nearly 70% are executed electronically. Platforms aregaining traction in block trades too, as functionality expands and efficiency improves.• Portfolio trading accounts for more than 20% of US IG volumes, up from 10% in 2023.The protocol facilitates the trading of illiquid bonds, adding breadth and depth to the market.• As public market liquidity improves, the compensation for holding illiquid corporatebonds has all but disappeared. Barring a few volatility spikes like the COVID shock, theliquidity risk premium has collapsed from 35bp in 2011-17, falling to 11bp through 2018-2024,and near zero by July 2025.FICC ResearchCredit & Ma