What is Active Bond Crowd?

Active bond crowd is the name given to traders who are members of the New York Stock Exchange (NYSE) and engage in high volume trading of active bonds.

Key Takeaways

  • Active bond crowd is the name given to traders who are members of the New York Stock Exchange and engage in high volume trading of active bonds.
  • Active bond crowd creates liquidity and can affect the price of bonds traded on the market.
  • Generally, the active bond crowd will be able to demand better prices for buying and selling active bonds.

Understanding Active Bond Crowd

The active bond crowd on the New York Stock Exchange creates liquidity and can affect the price of bonds traded on the market because they typically account for the largest volume of transactions in the market. Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. Generally, the active bond crowd will be able to demand better prices for buying and selling active bonds, which are corporate bonds or other fixed-income securities frequently traded at large volumes on the NYSE.

Active bonds can be an appealing choice for some investors because, as fixed-income securities, the price of the bonds is generally unaffected by their high trade volume. Active bonds also often have higher ratings from agencies such as Standard & Poor's and Moody's. Taking these features together, investors often use active bonds for portfolio diversification or as a relatively safe investment during periods of market volatility.

Many financial publications publish a daily chart that shows the 10 most actively traded securities, based on the total par value traded, in each of the corporate bond market's three sectors: investment grade, high-yield and convertibles. Investors can use this data to compare the market value of the corporate bonds they own or are considering purchasing.

As noted by the Securities Industry and Financial Markets Association (SIFMA), higher trade volumes for a specific security often mean higher liquidity, better order execution and a more active market for connecting a buyer and seller. The most actively traded corporate bonds also may reveal where bond investors see the greatest opportunities and risks in terms of industries and issuers.

Inactive Bond Crowd

The opposite of the active bond crowd is the inactive bond crowd, a term used to describe a group of exchange members who buy and sell bonds that are infrequently traded. Limit orders placed by the inactive bond crowd may take a longer period of time to fill due to the absence of frequent trading. The inactive bond crowd is also known as the cabinet crowd. Before electronic trading, orders placed by those in the inactive bond crowd were stored in cabinets off to the side of the general trading floor. This gave rise to the cabinet crowd nickname.