The Financial Industry Regulatory Authority (FINRA) Office of the Chief Economist posted a new Research Note on liquidity in structured products, complementing an earlier report on corporate-bond liquidity.
The new analysis focused on two categories of products: real-estate securities, including mortgage-backed securities in residential housing and commercial buildings, as well as collateralized mortgage products and to-be-announced forward mortgages; and asset-backed securities in credit cards, automobiles, student loans and other miscellaneous products.
The research identified positive and negative market developments. Specifically, the number and volume of new issues of securitized assets decreased sharply after the financial crisis and have not yet rebounded to pre-crisis levels, while trading volumes are down for most but not all securitized asset categories. However, bid-ask spreads are down in almost every category, the price impact of trades has fallen and the size of dealer networks has remained fairly stable, although interdealer trading has declined. The analysis also found little correlation in liquidity between securitized assets and corporate bonds, with the exception of collateralized mortgage obligations.
Together with our earlier work on corporate bonds, this analysis deepens and broadens our collective understanding of these important markets, and contributes to informed decision making among securities firms, investors, issuers and regulators,” said Jonathan Sokobin, Chief Economist at FINRA.