A new report by Citi Research analyst Matt King focuses on the liquidity of fixed income investments. While liquidity has never been better by some measures, other signs are more troubling and could mean more extreme volatility is on the way.

Current State Of Liquidity

King points out that the cost to trade U.S. Treasuries (UST) is relatively low, which is good for liquidity. However, while the number of outstanding USTs has doubled in recent years, it has now become more difficult to execute large trades without a major impact on prices.

As an example, King mentions the 37bp intraday move in USTs in October 2014 that had “little obvious explanation.”

Corporate Bonds

When it comes to corporate bonds, King presents…

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