In a 2015 memo, Howard Marks, of Oaktree Capital, defined liquidity as ‘the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price’.
He explained that it is not a fixed attribute, but instead ‘entirely situational’, and that it is a function of size and the direction of the market at that specific time.
These elements make liquidity difficult to forecast. Since he specific nature of the future ‘situation’ is not yet known, there will not always be a reliable availability of liquidity. Nevertheless, despite the challenges of applying it, the definition provides useful insights when assessing the availability of high yield liquidity.