Liquidity in these [msg1] markets has improved over time but is still quite poor. For example, half of outstanding corporate bonds did not even trade once in the first three months of 2006. 6 Individual bonds tend to be somewhat liquid immediately after they are issued, but trading activity declines quickly thereafter as investors put the bonds into buy-and-hold portfolios.
Also, shorting corporate bonds is very difficult. The dramatic improvement in credit market liquidity has been spurred by credit derivatives. One way to measure the improvement in liquidity is with bid-ask spreads. For investment-grade corporate bonds – a relatively liquid part of the bond market – the bid-ask spread averaged 64 basis points last year.