Fixed income trading in the era of liquidity shortages

With each passing month it becomes more difficult to transact without moving prices because of a shortage of market-making capital. One of the main causes of this shortage is the approaching full implementation of Basel III in 2019. Under this regulatory regime, banks are being required to hold greater amounts of capital to take trading positions on to their balance sheets, so they’re less willing to do so. Higher-yielding, higher-risk assets currently in demand by income-hungry investors are particularly expensive to hold under risk-adjusted capital requirements.