Robin Wigglesworth at FT Capital Markets has a long and interesting post on this currently important topic, most of all for corporate bond markets. The hot topic these days is why liquidity seems to have dried up along so many fronts at once. Here is one excerpt:
The causes of these illiquidity phenomena are manifold, and vary from market to market. But Matt King, a senior strategist at Citi, argues that the one common thread is the dominance of central banks over markets.
The paradox, he argues, is that the extra money pumped into the global economy by central banks is leading to “herding” by investors, as they run in and out of markets in a uniform fashion, prodded by shifts in monetary policy.
“Unfortunately, it leads to a rather ominous conclusion,” Mr King writes. “The bouts of illiquidity will continue until central banks stop distorting markets. If anything, they seem likely to intensify: unless fundamentals move so as to justify current valuations, when central banks move towards the exit, investors will too.”
Do read the whole thing, there are further points and charts of interest.