Posted To: MBS Commentary

Compared to stocks, bond markets tend to be more affected by changes in market participation surrounding holidays and other sources of illiquidity. Liquidity is closely related to volume, but is certainly not the same . The shortest definition of liquidity is "volume at price." In other words, if there is a decent volume of buyers and sellers interested in trading at any given price, that's a liquid market. Contrast that to volume which simply counts the size of the trades in question. Volume could be very high if there are a few very large buyers and sellers only interested in certain price levels, but that would not be a liquid market. The worst of both worlds in terms of frustration for market watchers is a low volume, illiquid trading environment. That means it takes fewer…(read more)