Banks' primary dealer corporate bond positions turn net short for the first time on record, raising questions about market liquidity and inventory risk

For the first time in data going back to 1998, primary dealers (the major banks authorised to transact directly with central banks in government bond markets) have moved to a net short position in corporate bonds, meaning they are collectively holding more short positions than inventory. Data compiled by Crisil Coalition Greenwich shows the aggregate net short position among dealers at roughly $4 billion so far in 2026. To put that in context, the same institutions carried a peak average inventory of $16 billion in 2017. This structural shift in dealer positioning is significant for how corporate bond markets function. Traditionally, primary dealers act as market makers, holding inventory on their books to facilitate client buying and selling. A net short position inverts that model: dealers are now, on balance, betting against the bonds they are supposed to be making markets in, or at minimum have withdrawn the capital cushion that historically absorbed volatility. The trend has broader implications for how corporate issuers access debt markets and at what cost. Thinner dealer inventory makes secondary markets less liquid, widens bid-ask spreads (the gap between the price a buyer pays and the price a seller receives), and can amplify price moves in stress periods. For UK and European issuers relying on sterling or euro-denominated bond markets, which share many of the same global dealer relationships, deteriorating dealer appetite in US corporate bonds is a leading indicator of tighter conditions across the board.