Exploding spreads in corporate market aid Jefferies, Mesirow

Bloomberg’s Bryan Keogh provides a good report on exploding spreads and declining volumes in the corporate bond market. Firms such as Jefferies and Mesirow are picking up staff and market share from primary dealers.

Of particular interest:

With larger firms committing less capital to making bets, corporate-bond trading volume has decreased about 40 percent to $16 billion a day this year versus the same period in 2007, Federal Reserve data on primary dealers show.

This loss of liquidity has driven a wedge between bids and offers, allowing traders to collect higher fees, said Kumar Venkataraman, 35, an associate finance professor at Southern Methodist University’s Cox School of Business in Dallas. He wrote a study on bid-ask bond spreads in 2006.

The gap on about 1,000 investment-grade bonds averaged 32 basis points last week, excluding about 600 securities with spreads of 100 basis points or more, according to composite pricing data compiled by Bloomberg. That amounts to about $24 in commission per $1,000 bond.

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