WHAT IS 'Inactive Bond Crowd'

The inactive bond crowd is a group of New York Stock Exchange (NYSE) members that buys and sells inactive bonds, which are bonds that are infrequently traded. Trade orders placed by members of the inactive bond crowd may take longer to fill than do orders for active bonds placed by the active bond crowd because of the low volume of trading, although this has largely disappeared since the institution of electronic bonds trading.

The inactive bond crowd is also called the cabinet crowd, because trading orders for inactive bonds used to be stored on top of a cabinet. The opposite of the inactive bond crowd is the active bond crowd.

BREAKING DOWN 'Inactive Bond Crowd'

The inactive bond crowd consists of members of the New York Stock Exchange (NYSE) who trade inactive bonds. Inactive bonds are bonds that are traded infrequently. Inactive bonds tend also to be traded in smaller numbers than are other bonds. Because the bonds are traded infrequently and in smaller numbers, before electronic trading existed, these orders used to be traded on paper, and orders for inactive bonds were placed off to the side on a rack on a cabinet to be traded when time allowed. For this reason, the inactive bond crowd is also called the cabinet crowd.

Inactive bonds are traded infrequently, either by traders or investors. Lack of activity makes them illiquid because they are hard to buy or sell. This creates a vicious circle in which infrequent trading makes investors wary of buying or selling they exactly because they are traded so infrequently, and investors are afraid that they won't be able to sell them if they need to.

History of the Bond Crowd

The term bond crowd in reference to bond traders became slang in the early 1900s, when people referred to the group of brokers and dealers who all gathered at the bond desk of a stock exchange to trade bonds. One bond dealer or broker was called a bond man, and the group of them was called a bond crowd. The ins and outs of the bond crowd and the process for trading bonds was outlined in the 1922 book The Work of the Stock Exchange by J. Edward Meeker. Before the Stock Market Crash of 1929, trade in bonds was infrequent, so all bonds were considered inactive bonds. After the crash and recovery, there was a greater market for lower-risk investments, so bond trading picked up, and the bond crowd got larger and more bond men traded bonds. Eventually the market for bonds became big enough to separate the brokers and dealers into the active bond crowd and the inactive bond crowd.

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