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We've all been hearing for over a year now that the liquidity and depth within the bond market is dissipating----banks are not as willing to take principal positions and bid/ask spreads are widening. A series of charts courtesy of Barclay's Research show the magnitude of the the bond market's problem.
The agency trading is especially popular for older bonds, likely because banks are less willing to take these bonds on to their balance sheet, as they're less certain that there will be an unidentified buyer right around the corner. Here is Barclays: In general, a higher proportion of block trades in older securities happen on order; in 2015, 28% of block trades in bonds issued more than five years ago had an offsetting trade within 15 minutes. More important, while agent trades have generally become more prevalent across all bonds since 2010, the effect has been clearly more apparent in bonds issued more than a year ago, suggesting a shift toward more agency trades for less liquid bonds.
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