Measuring Market Liquidity in US Fixed Income Markets: A New Synthetic Indicator
We propose a new synthetic liquidity indicator that summarises the data on a broad set of market liquidity measures both for sovereign and corporate fixed income markets in the US. Our index is based on 17 variables that cover the main dimensions of market liquidity. The methodology used to calculate the index consists of two steps. First, a transformation of the individual liquidity measures is made, based on the methodology proposed by Hollo et al. (2012) for the CISS (Composite Indicator of Systemic Stress) The transformed variables are then weighted using a principal component analysis. The indicator shows that liquidity in US fixed income markets has been impaired after the global financial crisis, mainly as a result of weaker liquidity conditions in US Treasury markets, whereas those in the corporate debt market remained stable.