This is my last big story for the Financial Times, as I’m heading off to a brand new gig at Bloomberg. The piece seeks to bring together a lot of what I’ve written about bond market liquidity, the rampant search for yield and the growing power of big buyside investors into a single narrative. Do read the full thing if you can.

Dan McCrum at FT Alphaville also has an excellent summary.

I’ve left some key excerpts below:

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Interviews conducted by the Financial Times with dozens of bankers, portfolio managers and traders reveal a bond market characterised by chronic opacity and dominated by giant asset managers, whose clout has risen exponentially since the financial crisis. Some market players alsofear that the structural underpinnings of the bond market — in particular the amount of “liquidity” available — have not kept pace with the rapid growth of recent years. These weaknesses could be exposed if investors, who have gorged on corporate debt for years, decide to head for the exit.

“Policy makers don’t pay attention to issues unless there’s a crisis,” says Mr Gallagher. “In the corporate fixed income market we’ve had this record issuance and real drop-off in liquidity. Here’s an area where the SEC can play a direct role in what I deem to be a bubble.”

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For investors, the stakes of securing a piece of the bond bonanza were high. At nearly $50bn, the scale of the offering far outstripped the $18.2bn worth of older US corporate bonds that would have changed hands in a normal day’s trading. Verizon attracted more than $100bn worth of orders from eager investors as portfolio managers large and small clamoured for a slice. However, not everyone got a piece.

Pimco and BlackRock, two of the world’s biggest asset managers, snapped up $13bn of the $49bn deal, according to people familiar with the matter. Pimco did not respond to a request for comment and BlackRock declined to comment on the deal. Small fund managers grumbled they had been left out of the lucrative bond sale. Analysts later estimated that investors made as much as $2bn in profit on the bonds in just 24 hours as prices of the new Verizon debt soared after they began trading. For many fund managers, the overwhelming demand for the bonds meant that the debt could have been sold at a much tighter “spread” to smaller investors, which would have reduced Verizon’s cost of funding.

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Bankers would “rather allocate to the big guys at a wider level than smaller guys at a tighter level”, says David Schawel, portfolio manager at Square 1 Bank.

Bonds: How firm a foundation?
Swimming with sharks