Government bonds around the world have become harder to buy and sell, resulting in higher costs and lower trading volume, Barclays said in a report released on Wednesday.
Tougher regulations in response to the global credit crisis had reduced the willingness of bond dealers to take on large blocks of US Treasuries and other sovereign debt from their customers.
The drop in liquidity and crowded trades or “herding” among big investors scrambling for returns in a protracted low interest rate environment, had contributed to bouts of extreme market swings such as one seen in October, analysts at the British bank said.
“Given that many of the post-crisis regulatory changes are here to stay, and with regulator buy-in for the changes in market structure thus far, we do not expect the growing illiquidity trends in government bond markets to reverse,” they said.
The report said turnover of cash sovereign bonds between dealers and customers had fallen sharply from pre-crisis levels.
The analysts defined turnover as the monthly cash trading volume between dealers and customers as a percentage of a country’s sovereign outstanding debt less its central bank’s holding.
