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Pre-Trade Transparency Targeted in Corporate Bond Markets – Business Times 

Author: \ August 18, 2017 \ 3 Comments
Full Article: Business Times

Global securities regulator umbrella body IOSCO has recommended that its members seek more information on corporate bond trading, particularly on the specifics of the market before a trade is made, and how it is subsequently reported

Comments
  • Mustang
    MustangAugust 18, 2017"Not a lot of information in this article, however there is a big distinction between collection and dissemination. The NASD collects a lot more information than disseminated. In many respects, I wish the hard data collected was actually disseminated, such as from ATS platforms. That said, what market widely disseminates intentions, as opposed to explicit transaction levels? Seems like an easy way to game the market. Anytime you wanted to buy bonds, submit a sell IoI.…"
  • Wolfman
    WolfmanAugust 18, 2017"Right on Cougar! I love being part of the Friday Newsletter because more often than not, we not only have the 10,000 hours team taking two sides of an argument, but also have two articles in the newsletter taking two sides. Yes, yes, yes, every academic paper points to greater pre-market transparency, but in practice, the results are often counter to the objective. Case in point is the article on Lazy Traders. By the way, there must be some copyright issue with that p…"
  • Cougar
    CougarAugust 18, 2017"Disclosing individual buy-sell side cares shared with a broker is insidious. IOSCO and the national regulators need to reflect on their objectives: is it to ensure every participant is treated the same irrespective of performance or MO, or have a functioning, liquid, deep, bond market to minimize funding costs for public and corporate entities and ensure minimal state aid in a crisis? If every market participant is treated the same way then that detracts from the inve…"
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How to Get a Competitive Advantage in Fixed Income – FixtHub

Author: \ August 10, 2017 \ 1 Comment
Full Article: FixTHub

Many fixed income firms are gaining a massive competitive advantage by structuring Bloomberg messages to find more trades and to find them before competitors. 

Comments
  • Mustang
    MustangAugust 11, 2017"Unstructured BBG messages are an incredibly inefficient way to communicate axes. The rise of Neptune underscores that. However, BBG does a disservice to itself to silo off its message data from other market axes via messages and IMGR. At the same time as they create a barrier, parsing is an extremely cheap and easy way to circumvent that barrier. Unstructured messages and using parsing to structure them outside of IMGR yields some interesting tidbits. This data has be…"
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A Morgan Stanley Trader is Gone and Wall Street Rivals Take Note – Bloomberg

Author: \ August 3, 2017 \ 3 Comments
Full Article: Bloomberg

His undoing at the bank began when Hutchin Hill, a hedge fund with about $3 billion in assets, noticed someone carried out a trade on a security that it also owned, sparking a decline in the price.

Comments
  • Goose
    GooseAugust 5, 2017"wonder what would happen if MS called Hutchin Hill and asked them if they were involved in a trade. If HH thought the value was wrong, progressive options are out there to put your money where your mouth is. Become a buy side liquidity provider by sticking a bid where you believe value is in "all to all" or matching systems. Wonder what the results would be.…"
  • Jester
    JesterAugust 4, 2017"I found this article a little hard to follow. From what I can gather, here are the facts. 1) A HF got upset because someone traded a bond that they are long 2) After investigating, it looked like a MS trader was involved 3) The MS trader initially denied being involved 4) The HF complained to the trader’s boss 5) MS then admitted to doing the trade and then fired the trader If the above is true, why isn’t this article focused on the real question? Why is Hutchin Hill…"
  • Wolfman
    WolfmanAugust 4, 2017"The impact of recent regulatory changes have created a deeper need for the sell side to cater to the buy side. Lying is unacceptable for BOTH the buy side and sell side. I'm glad to know that the buy side is sinless.…"
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MarketAxess defends its corporate bond trading status

Author: \ July 27, 2017 \ 4 Comments
Full Article: Financial Times

MarketAxess, the largest corporate bond trading venue in the US, has hit back at accusations that it is losing market share to Tradeweb, saying its smaller rival is putting out numbers that are “confusing” the market.

Comments
  • Merlin
    MerlinJuly 28, 2017"Classic MarketAxess. Many would likely conclude that they could teach the course 'How to lie with statistics' and now they are complaining about TradeWeb 'confusing the reader rather than clarifying...'. This coming from a firm that wouldn't break out 'other' for years to help investors get clarity on how their 'other' businesses were doing, anyone care to guess why? Even sol, TradeWebs' 'indiscretions' are fair game for attack but doesn't the CEO of MarketAxess have…"
  • Goose
    GooseJuly 28, 2017"Well said Jester. As our market loves to rightfully tell the regulators, "Fixed income isn't equities!".....but not when it comes to Reg ATS, more than happy to lean all over that rule to not qualify as an ATS for trade reporting or reg. Fair enough, so let's address our nuances by adding information in like "RFQ trade." Its absurd that the largest electronic trading platforms out there don't have to report their trades. The ATS qualifier is useless without it. Then w…"
  • Cougar
    CougarJuly 28, 2017"Perception is reality for anyone or organization in the short and medium term. In the long term the substance usually has to match but a lot can happen to other parties in that changed perception period. More's the question what's triggered this? Perception is business by other means - to synonym von Clausewitz.…"
  • Jester
    JesterJuly 28, 2017"It is a truly rare occasion when the focus article image and the focus article content come into perfect alignment…. This, ladies and gentlemen is one of those rare occasions. Please allow your humble Jester to explain... Even though the corporate bond electronic trading turf war may sometimes sound like a place where CEO’s “come out swinging”, it’s quite the opposite. Just look at what passes for a fight? An accusation that “readers” were “confused” by Tradeweb’s cla…"
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Do Buy-Side Institutions Supply Liquidity in Bond Markets? Evidence From Mutual Funds – Syracuse University/SMU 

Author: \ July 21, 2017 \ 1 Comment
Full Article: Syracuse University/SMU

This study presents new evidence on buy-side institutions as a channel of liquidity supply in the corporate bond market

Comments
  • Charlie
    CharlieJuly 21, 2017"Ultimately, it's the buy side that takes views and invests according to those views. When one fund sells something, another fund has to take the ther side. And the more a fund tends to take the other side, the better its performance. Investors doing that trade benefit from lower t-costs with dealers, helping the latter clean up their balance sheet, and may even get securities at a discount to "fair value". This is all well and good, economically sound stuff. And in a…"
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BoE Warns of Threat to Financial Markets From Potential Corporate Bond Sell Off – Investment Week 

Author: \ July 14, 2017 \ 5 Comments
Full Article: Investment Week

It found that redemptions worth 1% of the total net asset value of bond funds could result in European investment grade corporate bond spreads increasing by around 40bps, while a sell-off of 1.3% of assets could lead to a 70bps widening. 

Comments
  • Charlie
    CharlieJuly 15, 2017"Believe it or not, there's a valid question under all these Armageddon-style articles about pending doom in corporate bond funds. And the question is: Are corporate bonds still appropriate for an open-end fund structure that offers daily liquidity? The less liquid the benchmark, the bigger the risk that a corporate fund enters the Third Avenue downward spiral: get redemptions, sell your most liquid stuff to meet redemptions (negatively impacting performance), get more…"
  • Goose
    GooseJuly 14, 2017"Here is the cliff notes to the paper. The corporate bond market will get seriously hammered if an event takes place that creates large redemptions. A few more thoughts though before you go. As Merlin points out, what market doesn’t get scorched in this scenario? It seems the BOE is saying that given changing market market dynamics with the same market structure, the beating for credit today will be of a larger proportion. Market doubles in size, top buy size firms are…"
  • Mustang
    MustangJuly 14, 2017"“Suspending Redemptions”. Now here is an interestingly bad solution. If some investment vehicles suspend redemptions and other market participants don’t have redemptions to suspend, what do you think the latter will do in times of volatility? Sit by idly and wait for the market to return to “normalcy”? Nah, hit every bid that those portfolios own. Ultimately, these vehicles and the bonds that they own will also have “redemption suspension risk”. What will mom and pop…"
  • Merlin
    MerlinJuly 14, 2017"Interesting article about BoE analysis but not sure what value this brings other than knowing that the BoE (and hopefully others) understand that yes, spreads widen when there are more sellers than buyers and spreads tighten when more buyers than sellers. Am I being too simplistic? This is the same for all markets so why be surprised that their analysis shows this for the corporate bond markets? Perhaps it is their effort to try and model events to put some meat behin…"
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Towards a Fully Automated Stock Exchange (Part 1) – Fischer Black (1971) 

Author: \ July 7, 2017 \ 1 Comment
Full Article: Fischer Black

FNL Exclusive: This brilliant article by Fischer Black predicts how technology and electronic trading will change equity market structure. 

Comments
  • Wolfman
    WolfmanJuly 7, 2017"So for the bond geeks who read FN, the obvious parallel is specialist is to equities as dealer is to bonds. I don't think it's that simple or that direct. Small average trade size with a large number of participants are ingredients for a continuous market. BTW, I like the idea of participating orders to help specialists! We don't have that today, but we do have market orders which, in a continuous market, are the equivalent to what Dr. Black proposed. The automation o…"
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Lutnick Offers $20,000 Per Month to Trade on New Treasury Platform – FT

Author: \ June 29, 2017 \ 4 Comments
Full Article: Financial Times

The decision to offer a financial reward to market makers — the financial institutions that commit to offering prices for other investors to trade — draws on similar practices that already occur more commonly in equity and futures markets.

Comments
  • Cougar
    CougarJuly 1, 2017"I'm undecided on this (and it's not my area). The inducement is equivalent to 40MM turnover on a 5c bid-offer; across the 0-10Y curve that's a reasonable estimate and pure bid-offer so it's more like a 100MM bid-offer in the reality of where MMs trade. So 2 days P&L to get involved? Better than any other offer out there away from being a big shop. Paying 25 accounts this fee for a year makes complete sense to fulfill a virtuous circle to become a liquidity hub.…"
  • Wolfman
    WolfmanJune 30, 2017""When you see that trading is done, not by consent, but by compulsion—when you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—yo…"
  • Sundown
    SundownJune 29, 2017"This headline begs the question, "Who really needs the $20,000 to be involved?". Short answer: Not the HFTs (PTFs) who are main providers of liquidity to the platform. No doubt Mr. Lutnick knows from running eSpeed that the majority of the flow in that venue is PTFs (and BrokerTec/Nex)- as much as 70% of ADV. BGC is banking on speed being the main driver of the platform which is the PTFs lifeblood. Because they are unable to source their own flow without a client fran…"
  • Goose
    GooseJune 29, 2017"Interesting experiment from Mr. Lutnick. The model has had success elsewhere. Some key differences are in equities, you have the ability to force engagement with your price due to reg NMS, and in futures there aren’t competing venues trading the same instrument. If they crush tick minimums, they could have better prices. Will that drive flow to them from real money (still thru the banks I am guessing?), who doesn’t have to be there by the letter of the law, or will it…"
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In the New Bond Market, Bigger is Better – Wall St Journal 

Author: \ June 23, 2017 \ 3 Comments
Full Article: Wall Street Journal

Postcrisis regulations have reshaped bond markets, with the largest asset managers gaining advantages over smaller competitors

Comments
  • Wolfman
    WolfmanJune 23, 2017"First, PLEASE take down that picture! It's disturbing. I have to agree with Charlie and Jester. This isn't an analysis worthy of the journal. The large buy side firms have had a transparency advantage over the dealers for years, and they were willing to benefit from the dealers' wiliness to hold inventory and provide immediacy. I'm surprised that the majority of reporters who write about the bond market don't take on a more macro view. We are experiencing persistently…"
  • Jester
    JesterJune 23, 2017"Seeing a lot of poor reporting on the bond market lately and this is no different. How someone can write an article about the advantages of being a large asset manager in the bond market, but NOT mention the new issue allocation process is beyond me. It is impossible to calculate, but the favoured nation status that large funds enjoy when it comes to handing out new bonds makes a real difference in performance. A large majority of new deals trade higher when they are…"
  • Charlie
    CharlieJune 23, 2017"Wow. Where to start on this masterpiece? Banks as wholesalers and big funds as big-box stores? Such tortured analogies and terrible analysis. Let's just keep it simple. Bank balance sheet is more expensive because of Basel III, and other regulations also pile on to make it harder to hold inventory (e.g. Dodd-Frank). Ergo banks are no longer in the storing business, they are almost exclusively in the moving business (to add my own tortured analogy). And, since they don…"
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Dealers Must Up Their Corp-Bond Game – Markets Media 

Author: \ June 16, 2017 \ 2 Comments
Full Article: Markets Media

A few weeks ago, Graham Giller, head of data science research, CIB Data Science at J.P. Morgan, shared a conversation he had with a credit trader from his firm about a year ago who said that they did not know the price of things.

Comments
  • Tried and failed.
    Tried and failed.June 19, 2017"In the old days dealers simply knew more about how bonds were trading than their buy-side clients. The buy-side accepted this in return for liquidity provision and dealer profit margins. As the article suggests the information asymmetry has declined with the reduction in immediate liquidity. The question is, what have dealers now got that remains relevant to liquidity? Is it new issues that maintain the dealer/buy-side relationship or is a less well-observed undercurr…"
  • Wolfman
    WolfmanJune 16, 2017"Maybe it's me, but it seems that a relatively small group of buy-side firms are leading the charge to become market makers, or price makers as they like to call themselves. There are valid reasons for a move toward an all-to-all market for credit, but there also seems to be a fundamental need for the dealer/client relationship. Oddly enough, there is also a small group of dealers that are leading the charge to move away from market making and generating revenues from…"
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