There are certainly concerns that bond market liquidity may not be as robust as in the past, which could lead to sharper-than-anticipated price movements – of which the bond market events in mid-October 2014 are often cited as an example.
However, a review of the evidence does not point clearly to a significant role for the reduction in broker-dealer balance sheets or regulatory changes as being responsible for any shifts in liquidity.9 Other structural factors, such as the long-term trends toward higher participation of high-frequency trading firms in Treasury markets and greater disclosure of corporate bond trades, have been important.