How does liquidity work in the secondary bond market?

QnA
1

Hey, I’ve been exploring bonds on the platform and noticed that some are marked as “listed” or “available for trading.”

How exactly does liquidity work in the secondary bond market?

If I want to sell before maturity, will I always find a buyer?

2

Hi Manu.
That’s a fantastic question and one of the most important things to understand when investing in bonds.

Here’s how liquidity works in the secondary bond market:

  • Once a bond is listed on an exchange (NSE/BSE), it can be bought or sold just like a stock.

  • However, unlike stocks, bond liquidity can vary a lot not every bond has active daily trading.

  • Liquidity depends on factors like:

    • Issuer type: PSU or AAA-rated issuers tend to have higher demand.

    • Tenure: Shorter maturity bonds are usually more liquid.

    • Coupon & yield: Attractive yields increase trading interest.

    • Outstanding issue size: Larger issues see more secondary market activity.

So while you can sell before maturity, a buyer must be available at that time and you may have to sell at a slightly higher or lower price depending on market demand.