“We recommend investors focus on realigning the portfolio in the upcoming weeks, while the liquidity window is still wide open,” Wells Fargo & Co. credit strategists George Bory and Nathaniel Rosenbaum said in a May 9 report. As trading becomes more focused around new issues, “seasonality has increased, with the summer months being perennially illiquid.”

Their advice underscores a growing concern among investors that the ability to maneuver in a ballooning debt market may simply vanish one day, especially as Wall Street dealers curtail their market-making role. That flexibility often disappears when investors need it most, such as when they're receiving big withdrawals. So the worry is particularly poignant given that demand may shift away from the bond market as the Federal Reserve pulls back on its stimulus.

Record Sales

Now that higher capital requirements and new regulations have led banks to retreat from using their balance sheets to help trading, new bond sales have increasingly become the main force behind activity since the 2008 credit crisis.

New issuance ignites volumes in part because funds sell holdings to make room for new securities. More than five years of near-zero interest rates from the Fed have helped spur about $7 trillion of dollar-denominated corporate debt sales.

Bond offerings have been met by feeding frenzies of investors seeking riskier assets, who've been tripping over each other to buy and are largely unwilling to sell once they've gotten a piece.

Yet even with the record sales, trading has been relatively flat. Investment-grade bond-trading volumes have averaged about $3 trillion of transactions during each of the past four years, even though the amount of debt outstanding has surged by about 54 percent, according to MarketAxess Holdings Inc. and Bank of America Merrill Lynch index data.

And now that the sun is out, corporate treasurers are about to head out to work on their golf games. Last June, company-bond issuance in the U.S. plunged 65 percent from the month earlier, after dropping 26 percent during the same period in 2012, according to data compiled by Bloomberg.

Trading dropped 3 percent last June from May even as mounting withdrawals from bond funds forced managers to sell. The year before, it fell 8 percent, according to data from the Financial Industry Regulatory Authority. This doesn't bode well for investors who want to reshuffle their portfolios in a few weeks.

So, there is a time to sell, and a time to buy. Now may be the time to do both.

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