Corporate bond market liquidity is showing strong signs of expansion across both the United States and Europe, driven by more frequent trading in a broader range of individual debt securities from blue-chip issuers.
In the US investment-grade market, concentration in top-tier debt has softened noticeably. A company’s top three bonds represented approximately 35% of overall trading volume in that firm's securities as of this month—marking a five percentage point drop compared to January 2023, according to Barclays strategist Zornitsa Todorova. A similar broadening of trading activity occurred in European credit over a span of roughly three and a half years.
The shift toward broader trading activity is predominantly occurring within investment-grade bonds. In contrast, high-yield credit markets continue to see trading volumes heavily concentrated in a small number of issues. Major technology firms—commonly referred to as hyperscalers—also mirror this concentration, with trading activity remaining focused on only a select few debt instruments.
As trading activity spreads across a wider selection of a firm's outstanding debt, institutional investors gain greater operational flexibility to express specific yield-curve or maturity views. Additionally, this dispersion could contribute to a reduction in the liquidity premium traditionally associated with buying less frequently traded securities.
“As trading activity extends beyond benchmark issues, the valuation gap between on- and off-the-run bonds may narrow, creating a more efficient and liquid issuer ecosystem,” Todorova wrote.