Do time since issuance, credit rating, and issue size influence a bond's liquidity?

Expert Solution

Yes, time Since issuance, credit rating as well as a issue size influence a bond liquidity.

Credit rating of a bond is highly important in deciding the liquidity of the bond. The bond which have a higher credit rating will be more liquid than the bond which have a lower credit rating, because the companies which have ample cash to dispose of their periodic debt repayment liabilities are assigned with higher credit rating, while companies which does not have ample liquidity are assigned with a low credit rating.

A bond which has been freshly issued will have higher liquidity than a bond which has issued for a longer period of time.The bonds which are newly issued will generate a lot of interest among various traders while the bonds which has already been listed and are old does not have that much of liquidity.

Issue size also affect the liquidity of the bond. The higher issue size will decide that the bond will have a higher liquidity because a higher volume will trade on those bonds, while a bond with lower issue size will have a lower liquidity as lower volume of traders will trade on those bonds.

So all these three factors are highly important while deciding the liquidity of a particular bond.

jeff jeffy answered 1 year ago

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