Bringing voices together to promote well functioning markets
Every Friday, we send you an email of top articles related to corporate bond market development. The newsletter is a free service.

Fixed Income (Il) Liquidity in Focus – Markets Media 

Full Article: Markets Media

“Banks can’t do everything for us, nor should they,” he said. Electronic trading platforms and other alternative liquidity providers can help to the extent that they aggregate liquidity, but block trading remains a significant challenge, Prager said.

Comments
  • Goose
    GooseJanuary 12, 2018"I listened to a portions of the discussion. A few things caught my interest. As Jester noted, Citi said their client group is getting narrower. Barclays mentioned how important is is to be top 3, for seeing flow purposes, and dealers with niche businesses continue to get marginalized. On the flip side, you had commentary that said the ETF players are adding liquidity, some buysiders are talking to more counterparties, and all to all trading is making strides. Block tr…"
  • Slider
    SliderJanuary 12, 2018"I felt like I was at an industry conference listening to that crap yesterday although I must admit I did enjoy very much when Richie Prager actually said something like maybe “liquidity is not a god-given right”'for all bonds. I think most people would be in agreement with his but people were mostly speaking about the investment grade market, not high yield and muni's so assume his comment was made towards HG bonds. WOW! What happened to the Muni market or is that on…"
  • Jester
    JesterJanuary 12, 2018"A full day discussion on corporate bond liquidity and not one mention of the new issue market or the allocation process? Wow, just wow. Perhaps this is the reason that the representative from Citi said that in 2017 only 25 clients made up 60% of their volume. Could this be the same 25 clients that get the overwhelming volume of allocations on new issue deals? Why does this matter and what does it have to do with bond liquidity? Well, it stands to reason that if fewer…"
  • Wolfman
    WolfmanJanuary 12, 2018"Did I notice a shift in the message here? The buy side can't stand in at all time for dealers? The regulatory changes since 2010 created an environment that restricted dealers' abilities to take on risk and that's not the headline here? This is a great opportunity to tie together the impact that regulations have had on liquidity and press for action. Blah, blah, blah, blah, blah, blah...…"

Top Market Structure Trends for 2018 – Greenwich Associates

Full Article: Greenwich Associates

After years of debating trading protocols and what should be counted as “true” electronic trading, the debate will shift to who can provide the best data and derived insights that ultimately help both liquidity-makers and takers get their jobs done.

Comments
  • Wolfman
    WolfmanJanuary 5, 2018"This has been an eerily quiet year and who knows what 2018 has in store. Will it see a real crisis in cyber threats? I think that's always hanging over us like the imminent rift in the San Andreas fault. I think the ongoing march to data-driven decision making in the fixed income markets will continue as dealers back away from placing capital at risk. I agree that the regulators will have more of an effect than Congress on lightening the regulatory burden. What I don'…"

ING to Expand AI in Bond Trading – Markets Media 

Full Article: Markets Media

In addition to providing traders with a visualization of relevant historic and real-time data, Katana’s algorithms provide forward looking predictions of the price that will win an RFQ within a certain confidence range. Future developments include being able to price within Katana.

Comments
  • Goose
    GooseDecember 15, 2017"“Braje continued that clients are sending electronic RFQs more often and for smaller sizes. It is also easy for them to invite more dealers to participate so there is more competition” “Brahe continued that the tool allowed faster pricing decisions for 90% of trades, a 25% reduction in trading cost and that traders were able to offer the best price four times more frequently.” My curiosity lies in the following. If they are answering and winning smaller and smaller RF…"

Goldman Traders are Caught Up in a Bizzare, Tense Hedge Fund Battle – Bloomberg 

Full Article: Bloomberg

The flap was ignited by Blackstone Group LP’s credit unit, GSO Capital Partners, which is trying to convince the builder to accept a bond refinancing package. GSO’s plan would trigger payments on default insurance that it bought in the credit derivatives market.

Comments
  • Wolfman
    WolfmanDecember 8, 2017""On a technical level this is genius". So was buying insurance on British sailing ships that you didn't own! CDS are insurance policies and should have been regulated as such. I don't see how this could have possibly been the objective of the designers. You know, the more I think about it, it SHOULD happen. They all knew what they were getting into, and what the heck, lawyers have to eat too...…"

Everyone is Incentivised to Fix Corporate Bond Liquidity – Global Capital 

Full Article: Global Capital

A European Commission study has confirmed what every corporate bond market participant already knew was true – the market has a liquidity problem. Everyone is responsible, the EC says, but no one has any incentive to fix the problem. They need to pull together to improve liquidity while there is time. 

Comments
  • Jester
    JesterDecember 4, 2017"Is anybody else confused by the headlines on corporate bond liquidity. Major asset managers (see: Blackrock) used to complain that there was a massive problem, but then flipped to say everything was fine. US regulators (see: The Fed) have written passionately about how there is no corporate bond liquidity problem, but then turned on their own opinion to proclaim that there is a liquidity issue. Now comes the European Commission to proclaim what “every corporate bond m…"
  • Cougar
    CougarDecember 2, 2017"Liquidity benefited from a virtuous circle pre crisis but the regulators broke the market’s collective trust. It is encouraging the EC now recognises there is a significant bond market liquidity deterioration. There are flaws in the EC’s logic, which is as pity as it, in part, is responsible for the issues it now laments. Regulations implemented after the crisis have made it more difficult and less financially appealing for banks to attribute as much risk and investme…"
  • Slider
    SliderDecember 1, 2017"I hate this Slider name. Anyone else want to trade me? Tried and failed. I have come to the conclusion that people just don't get it and are trying to solve for something that cannot be solved. While increased connectivity helps on the margin, it is meaningless when it comes to a truly liquid market. The liquidity is what the liquidity is. It increases, it decreases, all depending on supply and demand. There are enough ways to bring buyers and sellers together but gue…"
  • Tried and failed.
    Tried and failed.December 1, 2017"Fragmentation is here to stay and in truth it should enrich the market by providing a wide range of protocols, workflows and functionalities. Equities manage to function perfectly well with fragmentation, why should Bonds be different? Apart from the obvious number of bonds versus low daily turnover argument that no one will ever solve, the solutions lie in more mundane origins. Connectivity, integration and data-normalisation. Take a moment to think what your phone d…"

US Treasury Dealers Accused of Collusion By Big Investors – FT

Full Article: Financial Times

A group of 17 US public pension funds and insurers have filed a lawsuit in New York alleging that their access to some electronic trading venues in the world’s biggest government bond market was blocked by a group of banks.

Comments
  • Charlie
    CharlieNovember 24, 2017"I agree with previous comments on the alleged auction collusion -- that's just wrong, if the allegations are true. On the IDB thing, it's important to remember what service market makers are providing and what risks they face. They are REQUIRED to make a market. They don't have the buy-side's luxury of buying or selling when they want to -- they are required to take the other side. The bid-offer compensates not just for the use of balance sheet, but also for the risk…"
  • Goose
    GooseNovember 17, 2017"I don’t have a law background, and my days being on a desk are a bit behind me, but my 2 cents. Auction Charge - It seems like a bit of time was spent talking about client auction information being shared internally across the treasury sales and trading desks. Maybe things have changed, but I don’t see how you could avoid overhearing market color on who is doing what across either desk, perhaps that’s just supporting fodder to show the dealer’s didn’t have any procedu…"
  • Wolfman
    WolfmanNovember 17, 2017"Regarding the auction complaint, the behavioral change raises a red flag. Regarding collusion, the structure of the bifurcated market arguably benefitted the buy side. Dealers regularly provided their clients with better liquidity at the moment than the dealers themselves enjoyed. They placed their capital at risk and delivered an immediacy of trade to their clients.…"
  • Viper
    ViperNovember 17, 2017"On the auction scandal. If there is actually collusion going on in chat messages then that is bad. It is what busts the dealers in every case even if the underlying act is benign. I used to always lose money bidding in auctions so I am struggling to even understand how this scheme would work. However, undoubtably, information is power and understanding where major customers are bidding would be extremely valuable. A lot of the data depends on post June 2015 observatio…"

Entire Ivy League Outpaces Harvard Endowment in Fiscal Year 2017 – The Harvard Crimson

Full Article: The Harvard Crimson

While most Ivy League endowments were able to capitalize on the bull market in fiscal year 2017, Harvard’s performance was weighed down by a series of high-value markdowns it took on some of its investments. The University’s financial report, released last week, detailed a nearly $10 billion markdown on domestic fixed-income assets, which include investments like treasury bonds, junk bonds, and corporate bonds.

Comments
  • Wolfman
    WolfmanNovember 3, 2017"First, kudos to the editor of the Friday Newsletter for nailing the image once again. I assume Billy Ray is on the Dartmouth site! While this article may not be typical of the newsletter, it does underscore the notion that we are in a bear market for bonds. These aren't like equities bears, but for the institutional investor or typical bond fund, they are nonetheless dangerous to yields. The Fed has said rates are going up, and for bond geeks, that means bond prices a…"

ICE to Buy Virtu’s Bondpoint for $400MM – The Trade 

Full Article: The Trade

ICE has agreed to buy Virtu Financial’s fixed income trading venue BondPoint in a deal worth $400 million. The purchase will enable ICE to bolster its fixed income capabilities within its data and technology structure as it continues to expand into the asset class.

Comments
  • Slider
    SliderOctober 28, 2017"While there are obviously a lot of smart people out there and it sounds like many of them were bidding for Knight Bondpoint, I don't understand how they get to that valuation. It seems people are using MKTX as the comparison but MKTX is in a unique position basically owning the NA credit space for over 10 years now watching TradeWeb and Bloomberg trip all over themselves multiple times in an effort to compete with them. To be fair, TradeWeb has done and awesome job in…"
  • Goose
    GooseOctober 27, 2017"The game continues to evolve. I thought it was pretty interesting that the announcement came right before the MKTX earnings announcement and call. It certainly created a diversion on the call, and generated some interesting question and response, you certainly wouldn’t have thought MKTX bid on them (unconfirmed press). From a structural perspective, KBP is the best credit ATS fit for an exchange. Minimal front end presence, lowest cost structure that is majority focus…"

What Renaissance Tech Has That You Don’t – Institutional Investor 

Quantitative hedge fund firm Renaissance Technologies, founded by mathematician James Simons, has had near real-time prices on corporate bonds and other debt for years. 

Comments
  • Wolfman
    WolfmanOctober 20, 2017"Pre-trade data can be invaluable, but it is not a substitute for finding the clearing price for the amount you need when you need it. The structure of the fixed income market isn't actually broken. We have near-zero volatility with historically low rates and capital restrictions creating this problem. While having more data always sounds like a solution, on its own it doesn't solve those issues.…"

Technology Spending Key to Fixed Income Market Share Growth – Traders 

Full Article: Traders Magazine

The top six U.S. government bond dealers have an aggregate annual technology budget of $26 billion. That astounding figure illustrates the extent to which technology prowess has become the key determinant of success or failure for banks competing in capital markets, reports Greenwich.

Comments
  • Slider
    SliderOctober 14, 2017"'Technology spend' would seem to cover a lot of things. If we look at from the FNL perspective on how FI technology is developing I think we can say that while progress has been made, most firms are still in shambles. It is different to build something that does something than to build something that people will use to do that something. The capital markets issues attempting to be addressed today are broad and varied, leading to huge internal spends and a plethora of…"
  • Cougar
    CougarOctober 14, 2017"That there is still a problem in fixed income that other asset classes overcame years or decades ago despite all the other asset class experts being parachuted in, as well as the significant spend, point to persisting problems - lack of information to deal (AKA 'price') decisively with confidence. These two issues are the inhibitors to market structure change: 1) the need to concentrate liquidity (rather than pretend to offer all-day liquidity) to allow traders to und…"
  • Jester
    JesterOctober 13, 2017"This article is an early Christmas gift to internal IT teams at banks, but it left me with a few questions. This "$26 billion" in proposed annual tech spending across the top six US government bond dealers, is that for just government bond trading or all products? I can't believe it is the former because there is just no way that government bond desks can sustain an average annual tech spend of ~$4 billion. Treasury market making never made that type of money and toda…"
  • Wolfman
    WolfmanOctober 13, 2017"$26,000,000,000.00 is a very big number, but the powers that be understand that this is a necessary spend. What this does, however, is identify a market for technology providers to attack. Talking on new IT development projects is a lengthy and expensive task and I think we'll see more and more third party solutions stepping into the fray. What's needed is a unique combination of technology knowledge and market knowledge which opens the door for start-ups, consultants…"