The pricing of new bonds has been operating in its own bubble, until now immune to shrinking liquidity in the secondary market. But new deals are beginning to feel the strain as asset managers are increasingly forced to use the primary market to rebalance portfolios. Market illiquidity has already begun to hurt deals, with issuers forced to stump up higher concessions to print debt than they would have to in a properly functioning market. "New issue premiums at the moment are merely a reflection of the liquidity in the secondary market," said an emerging markets syndicate banker. "They're to compensate for the lack of liquidity available."
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