A new liquidity tool!

Markit is about to offer a new “liquidity score” on corporate bonds and credit default swaps! I like that innovation and I see it as an example of how the market can come up with new solutions to problems if they really want to (perhaps with a kick in the a-s if needed…..)!

One important reason for the launch of this new tool is of course the regulators' sudden attention to liquidity risk, and Markit is supposed to use bid-ask spreads together with dealer information to create the five-graded liquidity score. They also plan to score asset-backed securities in the future. I am curious about whether the score will be a true success, such as many of the other Markit products such as iTraxx, or if the scores will simply be too coarse or too narrowly distributed around the center grade (3)? I am simply afraid that liquidity simply isn’t properly priced by the market (bid-ask spread). If that is a fact, are there profitable trading strategies to apply here?