Almost every day there's another salvo of arguments in the debate over whether bond market liquidity has been harmed by new banking regulations. Based on bid-ask spreads and most other standard liquidity metrics,bond markets appear to be about as liquid as they have been for a long time.Liquidity is worse, however, for larger-sized trades. If necessary to achieve financial stability,this is a cost well worth bearing. Here, however, the author suggests that a regulation known as the Supplementary Leverage Ratio could be changed so as to improve bond market liquidity without sacrificing financial stability. The amount of liquidity offered to bond markets by large banks is markedly reduced. Large banks are stocking much smaller market-making inventories of bonds.Faced with a client’s trade request,banks are now more likely to respond as an agent,by searching for a match with a third party, than as a principal who would immediately offer space for the trade on its own balance sheet. Balance sheet space is treated like expensive real estate,available only to positions that can afford to pay rental fees that are now much higher.