WASHINGTON - The Financial Industry Regulatory Authority released an
The alert, called Bond Liquidity—Factors to Consider and Questions to Ask, focuses on liquidity with regard to individual bonds, not bond funds, and provides some liquidity-related questions investors should ask their brokers when investing.
"Even buy-and-hold investors who have no intention of selling their bonds before maturity can benefit from better understanding how bond markets work," Gerri Walsh, FINRA's senior vice president for investor education, will say in the alert. "If you are investing in bonds, you need to be aware of how the potential for decreased liquidity might impact your ability to sell a bond before maturity."
The alert lays out several causes of liquidity concern, including the wide breadth of the bond market, smaller dealer bond holdings than in the past, and selling pressure caused by different individuals trying to sell bonds simultaneously.
FINRA recommends investors ask questions of their brokers like how the firms they are working with handle bond trades, specifically sell orders, and how often the bonds have traded in the past.
The alert also advises investors to seek out fixed income analysis tools to better model interest rate fluctuations and to maintain a focus on buying securities that fit their specific liquidity needs. These tools include the Municipal Securities Rulemaking Board's EMMA system, which posts near real time as well as historical trade data.
