Corporate bond liquidity before and after the onset of the subprime crisis

  • Dick-Nielsen J
  • Feldhütter P
  • Lando D
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We analyze liquidity components of corporate bond spreads during 2005-2009 using a new robust illiquidity measure. The spread contribution from illiquidity increases dramatically with the onset of the subprime crisis. The increase is slow and persistent for investment grade bonds while the effect is stronger but more short-lived for speculative grade bonds. Bonds become less liquid when financial distress hits a lead underwriter and the liquidity of bonds issued by financial firms dries up under crises. During the subprime crisis, flight-to-quality is confined to AAA-rated bonds. © 2011 Elsevier B.V..

Author-supplied keywords

  • Corporate bonds
  • Liquidity
  • Liquidity risk
  • Subprime crisis

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  • Jens Dick-Nielsen

  • Peter Feldhütter

  • David Lando

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