This study examines the relative liquidity of Asset Backed Securities (ABS), Covered Bonds (CBs) and Corporate Bonds (Corps). The measure of liquidity that the study employs is half the bid-ask spread divided by the mid-price. This equals half the round-trip cost of buying and selling the security per unit of value of the position as reflected in current market quotes.
The study focuses on Investment Grade (IG), GBP-denominated securities and senior ABS. The study compares the liquidity of different categories of ABS, namely Simple Transparent and Standardised (STS) versus non-STS ABS. To compare the liquidity of any two categories of security, the study computes the cost of an average transaction for all individual securities. For this, we utilise all the observations available on Bloomberg for the period March 2012 to June 2021. Transactions costs are defined as half the bidask spread, divided by the mid-price.
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