Taking advantage of the different trading behaviors of investors on same-issuer bonds, we show that informed trading lies at the core of the momentum effect for corporate bonds. We split the firm-level bond cross-section into top (non-top) bonds that are characterized by higher (lower) volumes of institution-sized trades. We show that top bonds attract more informed trading and transmit information faster than non-top bonds. We design specific top and non-top bond momentum strategies to capitalize on this informational heterogeneity. The results indicate that fast news spreading yields short-lived momentum in top bonds, whereas momentum in non-top bonds is strong and drawn-out due to slow information diffusion. These differences are concentrated in bond-level information-intensive periods and are not explained by differences in liquidity levels, systematic risk (including liquidity risk), bond characteristics, and market states. In particular, bond-level liquidity affects the momentum effect only by altering the rate at which news spreads.
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