Abstract
In this paper, we examine the development of liquidity in three major bond markets in Israel - nominal government, CPI-indexed government, and CPI-indexed corporate - since the onset of the global spread of the Corona pandemic up until the end of July 2020. To characterize liquidity, we use common liquidity indicators, which examine liquidity from the aspects of the liquidity cost, the market depth, and the market activity. We find that in mid-March of 2020, bond markets experienced severe illiquidity, which was reflected in a significant increase in the liquidity cost. Despite the severe negative impact, the liquidity cost in these markets recovered rapidly compared to the liquidity recovery following the 2008 crisis. At the end of the period examined, its level in the government bond market is relatively close to the pre-crisis level. We find that the lower the level of liquidity before the crisis, the larger the deterioration in liquidity across the various market segments, particularly in the corporate bond market. We examine in this paper the effect of the steps taken by the Bank of Israel during the coronavirus crisis. We find that after the publication of the plan to purchase bonds in the secondary market in the amount of NIS 50 billion, and the simultaneous onset of plans by other parties, there was a significant improvement in the liquidity cost indicators. All the while, the initial steps before the publication were only partially effective.