CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
Which feature most likely makes a bond more liquid in the secondary market?
A large outstanding issue from a frequent, well-known issuer is most likely more liquid. Many investors and dealers follow such bonds, so trading is active and bid-ask spreads are narrow. Small, closely held or customized bonds trade rarely and cost more to trade.
- AA small, infrequently issued size held by few investors
- BA large outstanding issue size from a frequent, well-known issuerCorrect
- CA complex structure with customized covenants
Explanation
Large issue sizes from frequent, well-known issuers attract many participants and dealers, tightening bid-ask spreads. Small, closely held or highly customized bonds trade rarely and have wider spreads.
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