Active Bond Crowd - Explained
What is an Active Bond Crowd?
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Table of ContentsWhat is an Active Bond Crowd?How Does an Active Bond Crowd Work?Inactive Bond CrowdAcademic Research on Active Bond Crowd
What is an Active Bond Crowd?
Active bond crowd refers to the name given to the New York Stock Exchange (NYSE) members and the particular bond trading departments which are recognized as traders who engage in frequent trading of active bonds.
How Does an Active Bond Crowd Work?
The active bond crowd on the NYSE creates liquidity and is capable of influence the price of bonds which are traded on the market in that they usually account for the largest transaction volumes in the market. Liquidity shows the extent to which a security or asset can be speedily bought or sold in the market without having an effect on the price of the asset. In general, the active bond crowd would be able to demand better buying and selling prices of active bonds. These active bonds are either corporate bonds or other fixed-income securities which are often traded largely on the New York Stock Exchange. For some investors, active bonds can be appealing. This is because as fixed-income securities, the bonds' price is usually unaffected by their high volume of trade. Also, active bonds are often rated higher by agencies like Moody's and Standard & Poors. Combining these features, investors frequently utilize active bonds to diversify portfolio or as a somewhat safe investment when the market is volatile. A daily chart is published by many financial publications. This chart shows the ten most actively traded securities which are based on the total face value traded, in each of the three sectors of the corporate bond market: high-yield, convertibles, and investment grade. Investors can utilize this data for comparing the market value of the corporate bonds they are either thinking of buying or the bonds they own. As noted by SIFMA, higher volumes of trade for a specific security typically means better order execution, higher liquidity, and highly active market for buyer and caller connection. The most actively traded corporate bonds of the day might show where the bond investors get the biggest opportunities, as well as, risks in terms of both issuers and industries.
Inactive Bond Crowd
The inactive bond crowd is the opposite of an active bond crowd. This term describes an exchange members' group who buy and also sell bonds which are seldom traded. When an inactive bond crowd places limit orders, it might take a longer time to fill as a result of infrequent trading. Another name for the inactive bond crowd is the cabinet crowd. Before the invention of electronic trading, orders placed by members of the inactive bond crowd usually were kept in cabinets off to the side of the general trading floor. This brought about the cabinet crowd nickname.
Academic Research on Active Bond Crowd
- The microstructure of the bond market in the 20th century, Biais, B., & Green, R. (2019). The microstructure of the bond market in the 20th century. Review of Economic Dynamics. Bonds are traded in opaque and fragmented over-the-counter markets. Is there something special about bonds precluding transparent limit-order markets? Historical experience suggests this is not the case. Before WWII, there was an active market in corporate and municipal bonds on the NYSE. Activity dropped dramatically, in the late 1920s for municipals and in the mid 1940s for corporate, as trading migrated to the over-the-counter market. Average trading costs in municipal bonds on the NYSE were half as large in 1926-1927 as they are today over the counter. Trading costs in corporate bonds for small investors in the 1940s were as low or lower than they are now. The difference in transactions costs likely reflects the differences in market structures, since underlying technological changes have likely reduced costs of matching buyers and sellers.
- An overview of the Australian corporate bond market, Battellino, R., & Chambers, M. (2006). An overview of the Australian corporate bond market. BIS Papers, (26), 45-55. The idea for a seminar on developing corporate bond markets in Asia was first broached in June 2005, when Governor Zhou Xiaochuan of the People's Bank of China (PBC) invited 12 major central banks in Asia and the Pacific to participate in a high-level seminar on financial markets. During the subsequent consultation between the PBC and the Bank for International Settlements (BIS), it was recognised that there had been numerous seminars on financial markets in Asia in general, including on developing local currency bond markets. But these seminars had neglected one issue that cried out for the attention of emerging market central banks: the development of the non-government segment of the local currency bond markets. While much progress had already been made in developing the local government bond markets, it was clear that the corporate bond markets in much of Asia remained behind their government bond counterparts, especially in terms of market liquidity. Hence, Governor Zhou's proposed topic was widely welcomed by the prospective participants in the seminar. He then asked the BIS Representative Office for Asia and the Pacific to help organise the seminar. Thirty participants including high-level officials from central banks in Asia and the Pacific, the European Central Bank and the BIS took part in the seminar. Among them were Governor Zhou of the PBC, Joseph Yam of the Hong Kong Monetary Authority and Malcolm D Knight of the BIS. The participants also included a few academics, regulators and market participants. To prepare for this BIS/PBC seminar, the central bank participants were asked to provide background papers to describe their local currency corporate bond markets and identify important policy issues. The academics and other participants were asked to focus on particular issues. For the seminar itself, these issues were grouped around five themes: (1) why a corporate bond market? (2) legal and institutional framework; (3) role of information; (4) market liquidity; and (5) the role of central banks in market development. This volume makes available revised versions of all these papers.
- The bureaucratic approach to the financial revolution: Japan's Ministry of Finance and financial system reform, Vogel, S. K. (1994). The bureaucratic approach to the financial revolution: Japan's Ministry of Finance and financial system reform. Governance, 7(3), 219-243. While all industrialized countries have enacted financial reforms over the past decade, Japan's Ministry of Finance (MoF) officials have crafted a distinctive approach to reform. They have managed to pursue their own agenda while at the same time responding to international market pressures and domestic political demands. This article examines Japan's financial system reform, the process by which the MoF has recast the regulatory barriers between different types of financial institutions, such as banks and securities houses. Financial system reform represents an extreme case of a common Japanese policy pattern the bureaucraticled bargain in which Japan's bureaucrats, rather than its politicians, organize the bargains that eventually emerge as policy. Two ministry policy councils deliberated for seven years before the Diet passed comprehensive reform legislation in 1992, and the ministry continues to redefine the reform at the stage of implementation today. While MoF officials have been forced to make concessions to industry groups and to adjust to unforeseen developments along the way, they have maintained overall control of the reform process. In fact, this article suggests that they have been remarkably successful in promoting their own peculiar interpretation of the public interest and in preserving and, in some cases, enhancing their own power.
- Corporate and Municipal Bond Market Microstructure in the US, Piwowar, M. S. (2011). Corporate and Municipal Bond Market Microstructure in the US. Complex systems in finance and econometrics, 93-115.
- Equilibria under 'active'and 'passive'monetary and fiscal policies, Leeper, E. M. (1991). Equilibria under activeand passivemonetary and fiscal policies. Journal of monetary Economics, 27(1), 129-147. Monetary and fiscal policy interactions are studied in a stochastic maximizing model. Policy is active or passive depending on its responsiveness to government debt shocks. Schemes for financing deficits and, therefore, the existence and uniqueness of equilibria depend on two policy parameters. The model is used to: (i) characterize the equilibria implied by various financing schemes, (ii) derive policies where fiscal behavior determines how monetary shocks affect prices, and (iii) reinterpret Friedman's 1948 policy framework. The paper reconsiders the result that prices are indeterminate when the nominal interest rate is pegged. The setup can be used to interpret reduced-form studies on fiscal financing.