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Has US Corporate Bond Market Liquidity Deteriorated?- Liberty Street Economics

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    StingerOctober 8, 2015"And to think, these past several years all we needed was a few arbitrary references to a handful of loosely defined charts to prove there are no liquidity issues and to support theories of a major positive shift in market structure. All FI investors out there who have been cautious, this is your sign to get back in there and BUY!! BUY!! BUY!! Ok, apologies for my tongue in cheek response intro but after reading this article I couldn't help it. I really cannot follow t…"
  • Wolfman
    WolfmanOctober 8, 2015"Not only is this "illogical", it doesn't take into account that RATES ARE PERSITENTLY LOW and these low rates must be taken into account when making a judgment that bid ask spreads are low by historical standards. I can see Captain Kirk hearing Spock say that this is illogical and then he calls down to the engine room, where, by the way the rates are set, only to hear Mr. Scott say "I'm givin' here all I've got Captain!" Do we think the execution of Monetary Policy ca…"
  • Merlin
    MerlinOctober 8, 2015"These guys work for the Fed? Does that mean they are govt employees and we pay their salaries? Ugh. I don't pretend to know the answers to the questions posed, although i have my opinions, but this study seems extremely flawed. Lets only just look at their conclusion of the average bid offer spread over time. if i am interpreting properly the researchers are using the 5 day moving average of each bonds bid offer spread using the daily average price of purchses from cl…"
  • Goose
    GooseOctober 7, 2015"Whoa, I have several thoughts/questions about this article before I also leap onto the “all is well” square on my “Jump to Conclusions Mat”.* - 400 Billion in corporate bond US dealer inventory? I have seen different numbers, but never one like that. I think GS estimated the high at 40 billion, with mortgage and credit at a high of 240b. - How do you make market conclusions looking only at HG bonds, and then in the follow up article only 60-100 of HG bonds in the most…"

The Perils of Forcing a Sale of Illiquid Assets – DealB%k

Comments
  • Merlin
    MerlinOctober 2, 2015"The shady business of Hedge Funds. Who really knows what goes on behind those walls...... The Pension Investment Board of Canada, whomever that is (dopey me) was the LARGEST investor in the Saba Fund. Why? Was there a personal relationship with Boaz or did he and his marketing team just talk themselves into the PIBC's (easier than writing out again) pants? What did PIBC not understand about the sophisticated strategies (I assume based on his background and his persona…"
  • Goose
    GooseOctober 2, 2015"Agreed Wolfman. When you want to/HAVE to move something it’s worth what someone will pay for it at that instant, period. I am sure there could be a lot more to the story, but if I have this right, Saba has this distressed position marked where he thought he could sell it tomorrow. Given the nature of the asset and market structure, the ability to determine that can only be described as difficult at best. As Charlie said, time to get a new PM if they thought the outcom…"
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    CharlieOctober 2, 2015"If my math is correct they are suing over 2.4% of the portfolio value. I don't see an egregious miss marking of assets here, it could easily be within the bid / offer for the size of the position. The client knew the fund strategy and holdings, the client had investment professionals (or at least I suspect that is what they held themselves out to be when negotiating their renumeration) and they clearly failed to appreciate the risks of their investment. They should al…"
  • Wolfman
    WolfmanOctober 2, 2015"THE ONLY BUYER! Oh boy. Bottom line, there is a price of immediacy and yes, that price will vary. What thinks you?…"

Liquidity Rules Proposed On Outflow Fears – FT

Comments
  • Wolfman
    WolfmanSeptember 25, 2015"I hope whoever is subscribing to the Friday newsletter appreciates the value that it brings. Over the last few months, the focus articles have steadily built upon a theme. That theme is the overall transparency and liquidity of the bond market. We have seen articles related to the "electronification" of the bond market, seen startups once praised for their forward-thinking and enlightened solutions to corporate bond liquidity unceremonially close shop. We have heard f…"
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    CharlieSeptember 25, 2015"Good to see the SEC reacting to the noise about broken bond markets and illiquidity. It is not necessarily bad news for investors or mutual funds. One benefit would be investors remaining in the fund are no longer penalized by having to pick up any losses caused by leaving investors being paid the NAV. Another benefit could be managers can reduce the liquidity buffer and so track their target index more closely meaning larger returns for investors (hopefully positive)…"
  • Merlin
    MerlinSeptember 24, 2015"It seems to me that it would be a good thing for more disclosure around a particular funds liquidity and would be considered an improvement over today's requirements. Investors could then take this expected/hoped for improved disclosure and incorporate it as another input into their investment decisions. Unclear whether this disclosure could somehow include a numerical measure of the funds liquidity but think that would be nice for retail investors if possible. My gue…"

Transaction Costs, Trade Throughs, and Riskless Principal Trading in Corporate Bond Makets – USC Marshall School of Business (Larry Harris)

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    StingerSeptember 20, 2015"The amount of research and analysis done to support this paper is impressive. Having done some analysis of trace and quoting data (albeit not to this extent), I do share some of the views (as well as some of the frustrations) around how to assemble what seems like a good indication of how trades have been executed and at what price. However I do not share the author conclusions, as I feel most of his points seem to be broad strokes based on non conclusive data sources…"
  • Merlin
    MerlinSeptember 19, 2015"I was going to take a pass on this one because the paper deserves a lot more attention than I am able to give it right now but Wolfman hit a chord with me. What good is having a 'fairer' price dissemination method if there are no prices to disseminate? In other words, take all of the profit out of it and the price makers go away and you are left with an even more illiquid market. Sure, you can argue that the largest most liquid issues could still transact this way and…"
  • Wolfman
    WolfmanSeptember 18, 2015"I will openly admit that I have not analyzed this paper as closely as the effort put into preparing demands. That said, it leaves me with this nagging question. Why is it that the credit market is continually compared to the equities markets? Is a consolidated quote mechanism the only real difference that has stymied the advancement of the electronic trading in credit? Information asymmetry is the mechanism by which most service companies generate revenue. Technology…"
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    CharlieSeptember 17, 2015"The authors have clearly done a lot of analysis as I have only skimmed the article and my experience is in the institutional market I found myself disagreeing from page 1! Perhaps the authors points are actually more related to practices in retail / mid market? Irrespective of institutional or retail I found myself thoughout this thought provoking paper asking ‘what does the FINRA rule book say?’ It would be fascinating to put all the practices discussed in the contex…"

The New King of Electronic Trading is…-Greenwich Blog

Comments
  • Merlin
    MerlinSeptember 11, 2015"Thought provoking and some excellent comments by Charlie and Hollywood (you guys/gals been practicing?! :) ) Would be interesting to see this as a time line as implied by Hollywood and notional as suggested by Charlie. Think would tell an interesting story. One thing is for sure, it took a LONG time for the two to the right to get to where they are after over 15 years of e-platorms going back to 1999 and Trading Edge, Limit Trader and others. Surprised UST is as low a…"
  • Hollywood
    HollywoodSeptember 11, 2015"McPartland states: “Driven primarily by new rules requiring index CDS trades to be executed on a swap execution facility, the dealer-to-client market for CDX.IG trades is now the most electronically traded in the US” – The implication is that regulation created the growth of a move towards electronic trading. However, prior to SEFs going live CDS Index was already trading 75% electronic (without regulatory mandates). This was an organic evolutionary process for a stan…"
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    CharlieSeptember 11, 2015"Fascinating chart from Kevin McPartland, as always! I can't help wondering what the chart would look like if Equities were displayed on a notional basis instead of commission dollars. If we were to take out the 'regulatory effect' i.e. the mandating of SEFs it would seem that little has changed over 10+ years, no ground swell adoption, no catchy innovation. Outside FX and to a great extent equities / US treasuries electronic trading is struggling to make an impact. If…"

Banks Brace for European Crackdown on Corporate-Bond Allocations – Bloomberg

Comments
  • Goose
    GooseSeptember 4, 2015"The 3 main pillars are the top 5 underwriters, large investors, and issuers. As commentary has stated, there is zero incentive and interest for two of them to change the structure. The US Treasury auction/primary dealer model shows that variations of the concept can work, depending on nuances of the market. Google ran an auction for their IPO, and there was plenty of hoopla around it. Here is a link to an interesting 10 year look back article from Forbes, http://www.f…"
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    CharlieSeptember 4, 2015"The premise of looking at primary allocation and ensuring fair and equitable distribution not to mention best execution for the borrower is an honorable objective. ESMA’s implementation timeline of December is worrying. Will we get a well thought through piece of legislation that is easy to implement and enforce? I have to agree with Mr Ewing of ICMA the present proposal is unworkable in a cost efficient manner and more to the point it compliance cannot be monitored i…"
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    JSeptember 4, 2015"Neither the banks nor the largest participants in the new issue business are incentivized to change it given the benefit both derive (large allocations with essentially guaranteed p&l along with higher fees than are likely to prevail in something more open and competitive). How would anything entrepreneurial really find enough support outside of external pressure?…"
  • Merlin
    MerlinSeptember 4, 2015"I like the idea of somehow changing the way that bonds get issued (assume equities has the same problem) but I don't like the regulators being involved. There have been a number of efforts over the years, I believe with the H & Q model having the most success in the prior decade (not sure if this system is still in operation, sorry to those running it if it still is!). Motivated issuers, dealers and buy side participants wishing to see a change can easily find qua…"

Why FinTech is Hard: Lessons from the CEO of BondCube – Huy Nguyen Trieu

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    VIPERSeptember 9, 2015"If history is to repeat itself again, keep in mind three factors are likely to determine which platforms will survive and thrive over the next 3-5 years 1.) Access to much more capital than the initial business plan indicated. It takes years to build, and nurture the network, much less monetize it as Hollywood suggests. 2.) Anchor tenants. Having network participants with a strong financial incentive to use and support the platform helps tremendously in the early days…"
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    ViperAugust 28, 2015"Paul has joined a long list of aspiring entrepreneurs who have donated time, money, and ideas into the gutter of corporate bond electronic solutions debris. We are in a different time than those early pioneer days where the first piles of debris started collecting. It seems the lessons we are relearning are very clear. the buyside is voicing its desire for progress, alternatives, enhancements etc etc yet behavioral change is both very hard and perhaps not all that nec…"
  • Goose
    GooseAugust 28, 2015"Wolfman, interesting comments on regulation. From Paul's experience, seems the fixed cost carries a pre launch funding barrier to innovators, and a moat for the incumbents. So, will regulators impose more regulation to overcome the barrier of regulation? As noted US equity markets did. From a light perusal, it seems MIFID II rules would lower the barriers for a platform to have their quotes, IOI's etc, displayed and respected. Would be interested to hear someone's per…"
  • Wolfman
    WolfmanAugust 28, 2015"What a great opportunity for all of us to have Paul share his insights into the challenges he faced, and to his credit, where he thinks he failed. We are in an industry where the incumbents have a distinct advantage and any innovation that challenges the status quo faces tremendous challenges. I think Chris's choice of Sisyphus was a perfect meme for this article. However, and this is where I think we really need to dig deeper, is understanding that any company, incum…"

We Still Need Someone to Talk To – Best Execution

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    Peter ClassenAugust 26, 2015"We should dig a little deeper into Darwin's Origin of Species Theory. If we understood it better, it might indeed help us answer the fixed income future-of-trading question. Darwin's theory is not that organisms (even traders) evolve to a high order, achieve greater efficiency, or become stronger. His theory is that in a population filled with individuals each having slight variances (think: different trading protocols and exchange features), the individuals best suit…"
  • Goose
    GooseAugust 20, 2015"I do think the article is stating the obvious, but given the mania over e trading and liquidity, it’s a nice timely reminder of reality. The most liquid electronified markets in the world still have large human interaction and intervention in the trading process. As the more heterogeneous FI markets evolve electronically, low hanging execution fruit may disappear, but the high touch OTC opportunities generated by an electronic ecosystem will be numerous. Do the latest…"
  • Hollywood
    HollywoodAugust 20, 2015"Cumberland states: “Celent has estimated that over 50% of buy-side fixed income trading will be electronic by the end of the year.” This is no great revelation based on the fact that many fixed income segments are already there. For example a large Dealer estimates the US percentage of electronic trading, by sector, as follows: CDX 98%, Interest Rate Swaps 60%, US Treasuries 55%, Agencies 30%, US IG Corporates 22%, US HY Corporates 8%, and Single Name CDS virtually no…"
  • Sundown
    SundownAugust 20, 2015"Mr. Cumberland’s comments are on-point, the more complex the instrument, the more human action is needed. Anything generic, including strategy, can be provided most efficiently via machine. What cannot be ignored is that while people will always be a firm’s most valuable resource, it is also a comparatively expensive one. Humans will be needed to either run the machines, sell more complex (and relatively higher margin) products and maintain important client relationsh…"

Bond Managers ‘Nervous’ About Banks’ Role in Liquidity Projects – Investment Week

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    CharlieAugust 14, 2015"Thank you Iceman for a few specifics on Neptune, the article certainly didn't advance my understanding and it seems a few people quoted in the article don't understand it either. Neptune has a an education challenge on its hands. Is it it just me, when I read the words 'non profit' and x banks, y buyside owners etc etc., I yawn and think this is going nowhere fast; too many conflicting interests and agendas, too tough to get decisions made, and most importantly no pro…"
  • Iceman
    IcemanAugust 14, 2015"This article is one of the weirdest (and that's saying something) pieces I have read in a while. As per below Merlin is spot on but to answer some of the questions raised. -“Money managers like me are nervous about going into the system and announcing our intention to buy and sell.” Are we all sure that there is even such functionality in Neptune? Answer = No. In its current form it is Sell Side to Buy Side mirroring in a more cost effective, and higher quality format…"
  • Sundown
    SundownAugust 13, 2015"Wow, I don't have a huge amount to add to Merlin's detailed analysis. The main things one has to understand when building a new platform addressing market structure problems are the following; (1) It cannot address all the problems- in other words it has to be adequate, not perfect (2) It has to be better than what presently exists, filling a need (3) It has to have flexible protocols that can evolve, (4) It has to be easy for all players to connect to (5) It has to a…"
  • Hollywood
    HollywoodAugust 13, 2015"Merlin - Well Stated! My understanding is that Neptune simply replicates the existing dealer to client work and, simply adds connectivity efficiencies.…"