How Liquid Are Corporate Bonds?
In volatile markets, liquidity is at a premium, so how liquid are corporate bonds now? Investing in bonds can be risky, but not as risky as some securities out there. Bonds usually don’t have the volatility with the up and down swings of the stock market. Still, they can have their own risk factors as other type of investments. Bonds are most liquid after issuance.
Additional risks for corporate bonds can be credit, default and event risks. Debt load on Event risk can cause the bond to fall. Credit and default risks are when the bond issuer is unable to make the payments on the interest. So it really depends on what the trading value is, on whether the bond itself has a high liquid factor. (SIFMA)
Some questions to ask about bonds before purchasing, is how is the credit risk on those issuing such bonds. If a corporation is going bankrupt, they could be selling ‘junk bonds’ which means they want to sell these bonds and try to reap some kind of profit back as quickly as possible. This does mean your bond investment can have a high risk on yield. The liquid assets are going to be sold and depending on the bond issued from the corporation, you should be ready for a loss, just in case. High risk can go ways, high yield or high loss, so it is a good idea to keep up on the markets when thinking of bond investments. Corporate bonds can be bought through many types of corporations from utilities, airlines, trucking, railroads and manufacturing.
Another good question is if the bond has a Putable option and if it is listed on the exchange, will this make more of liquidity on the bond itself. Know your bonds before you strike out and make a purchase that you may regret in the long run. A putable option on a bond means that the security is a short term investment and owner of the bond can return it back before the maturity date. (MySMP)