Introduction
The bond market is witnessing a notable trend as investors seek higher yields from illiquid bonds. As of 2023, global bond issuance reached approximately $21 trillion, reflecting a growing appetite for fixed-income assets amid fluctuating interest rates and economic uncertainty. Furthermore, the liquidity premium associated with these illiquid bonds is becoming increasingly attractive, with yield pickups averaging 1.5% to 2% over comparable liquid bonds. This report outlines the key players in the illiquid bond market expected to influence yield dynamics through 2026.
Top 20 Illiquid Bonds Yield Pickup Countries/Companies/Brands
1. United States
The U.S. holds the largest bond market in the world, with approximately $46 trillion in outstanding bonds as of 2023. The liquidity premium for illiquid bonds here has shown a consistent yield pickup of around 2% compared to liquid counterparts.
2. China
China’s bond market has grown to over $18 trillion, with a significant portion attributed to local government bonds. Illiquid bonds in China are offering a yield pickup of 1.8%, driven by government policy and credit ratings.
3. Japan
Japan’s bond market is valued at about $9 trillion, with a focus on government bonds. The liquidity premium on illiquid bonds stands at 1.2%, reflecting investors’ demand for higher returns amidst low-interest rates.
4. Germany
Germany has a bond market size of approximately $2 trillion. The illiquid segment is generating a yield pickup of 1.5%, primarily due to the strong credit ratings of German issuers.
5. United Kingdom
The UK’s bond market is approximately $3 trillion large. Illiquid bonds are currently offering a yield pickup of 1.7%, as investors seek refuge from market volatility.
6. France
With a bond market size of around $2.8 trillion, France’s illiquid bonds yield a premium of 1.4%, influenced by fiscal policies and economic recovery efforts.
7. Brazil
Brazil’s bond market is valued at about $1 trillion. Illiquid bonds here provide a yield pickup of 2.2%, attributed to higher local interest rates and economic growth prospects.
8. Canada
Canada’s bond market, with an estimated worth of $1.5 trillion, has seen illiquid bonds yielding a premium of 1.6%, driven by stable economic indicators.
9. India
India’s bond market is approximately $2 trillion in size. Illiquid bonds are yielding a pickup of 1.9%, reflecting strong domestic demand and infrastructure investments.
10. Australia
Australia’s bond market is valued at around $1 trillion, where illiquid bonds are yielding a premium of 1.5%, primarily due to the country’s credit ratings and economic stability.
11. Italy
Italy’s bond market stands at approximately $2 trillion. The illiquid segment offers a yield pickup of 1.8%, influenced by investor perceptions of Italian fiscal reforms.
12. South Korea
The South Korean bond market is valued at nearly $2 trillion. Illiquid bonds here are yielding a premium of 1.4%, supported by strong domestic consumption.
13. Mexico
Mexico’s bond market is around $700 billion in size. Illiquid bonds yield a pickup of 2.1%, driven by favorable economic policies and trade agreements.
14. Spain
Spain’s bond market is valued at approximately $1 trillion. The illiquid bonds in this market are providing a yield pickup of 1.6%, influenced by economic recovery post-COVID-19.
15. Netherlands
The Dutch bond market stands at around $800 billion. Illiquid bonds yield a premium of 1.5%, which is supported by strong domestic investment flows.
16. Singapore
Singapore’s bond market is valued at about $400 billion. Illiquid bonds yield a pickup of 1.7%, reflecting its status as a financial hub in Asia.
17. Switzerland
Switzerland’s bond market is approximately $1 trillion in size. Illiquid bonds are offering a yield premium of 1.3%, driven by the country’s stable economy.
18. Russia
The Russian bond market is valued at around $600 billion. Illiquid bonds yield a pickup of 2.0%, influenced by geopolitical factors and market conditions.
19. South Africa
South Africa’s bond market is approximately $400 billion. Illiquid bonds are yielding a premium of 1.9%, supported by economic reforms and investor interest.
20. Turkey
Turkey’s bond market is valued at about $300 billion. The illiquid segment provides a yield pickup of 2.3%, driven by higher inflation and risk appetite from investors.
Insights
The trend of seeking yield in illiquid bonds is anticipated to continue through 2026, as investors look for alternatives to low-yielding liquid bonds. The average yield pickup across listed countries is expected to stabilize around 1.7%, amidst increasing global economic uncertainty. Additionally, as central banks worldwide maintain accommodative monetary policies, the demand for higher yields in illiquid bonds is likely to grow, with a forecasted bond issuance of approximately $25 trillion by 2026. Investors will need to carefully assess the risks associated with illiquidity while capitalizing on the potential for enhanced returns in this evolving market landscape.
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