Informed Trading and the Dynamics of Client-Dealer Connections in Corporate Bond Markets

Abstract Using a unique regulatory data set with disclosed counterparty identities, we show that sophisticated clients in corporate bond markets outperform when splitting their orders across multiple dealers. The effect is stronger for informationally sensitive clients, for high-yield bonds, and during informationally intensive periods including COVID-19. Identifying clients who simultaneously trade in government and corporate bonds reveals that connections have larger and more persistent effects in the corporate bond market. (JEL G12, G14, G23, G24)