Corporate-bond funds that received $20.66 billion of deposits last year are funneling cash into bonds that trade most frequently, which have the narrowest bid-ask spreads and are easiest to sell if managers need to raise cash.

Upon receiving an offer to buy bonds that seem attractive on a yield basis, “the first question is always, ‘Is it index eligible? Is it liquid?’” said Rajeev Sharma, a fixed-income money manager at First Investors Management Co. in New York.

Actual investment-grade bond trading costs were 37 basis points lower than the implied expense based on average bid-ask spreads in the fourth quarter of 2012, Barclays data show. The gap between the two measures was about the same as in the three months ended June 30, the widest since the period ended three years earlier, according to the data.

Price Rise

The data, which derives transaction costs from bid-ask spreads and bond duration, shows that investors are focusing on notes that are easiest and cheapest to sell in the face of higher transaction costs than two years ago, Barclays analysts Jeffrey Meli and Alex Gennis in New York wrote in a Jan. 4 report.

Financial bonds, which Barclays calls the most-liquid portion of the dollar-denominated index, gained 15 percent last year, 6.5 percentage points more than industrial debt, Bank of America Merrill Lynch index data show.

The price of bank bonds on the financial index reached 110.3 cents on the dollar on Dec. 31, a 9.5 percent increase from the end of 2011. That compares with a 3.9 percent price rise on investment-grade notes during the period, which ended the year at 113.3 cents.

Seeking Flexibility

“We have tried to get more involved in liquid names, and that was a result of the credit crisis for sure,” Sharma said. “You didn’t want to be in a place where you couldn’t get out of certain names.”

Buyers are seeking flexibility as a 6 percent increase in trading volumes fails to keep up with a 13 percent rise in the size of the dollar-denominated market, data from Bloomberg and Bank of America Merrill Lynch show.