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.
Sign Up!
Join Discussion ⌄

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…"
View More Comments
Join the Discussion

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…"
View More Comments
Join the Discussion

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…"
View More Comments
Join the Discussion

Trump Team’s Bond-Trade Worries Are Too Late – Bloomberg Gadfly

Author: \ June 9, 2017 \ 2 Comments
Full Article: Bloomberg Gadfly

Regardless of how substantial bond-market liquidity threats are to financial stability, this study is years too late. At this point, banks and investors have generally adapted to the current environment.

Comments
  • Wolfman
    WolfmanJune 9, 2017"Bloomberg news is just another progressive media outlet and not an independent source of expert journalists who can put personal bias aside. The notion that people have generally adapted to this new world reflects a stronger desire to promote an ideology than to understand the structural impacts of reduced dealer liquidity provision. So, disagree with the conclusion of the "adaption", then you may just be a conservative...…"
  • Jester
    JesterJune 9, 2017"Really liked the data in this article, but there were a couple of huge misstatements that caught my attention. Here was the first doozy: “And it turns out that bond trading can still be lucrative for large banks, even with much less risk. The goal is to rack up enough volume to generate substantial profits, regardless of the fact that each trade is less profitable than in the past. At this point, the biggest lenders employ traders with more experience matching up buye…"
View More Comments
Join the Discussion

Fixed Income Trading Models: Convergence Ahead? – Markets Media 

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

You’re going to have a portion of the buy side that will continue to do their business through the RFQ model, but at some point, there’s going to be integration with or into the CLOB model

Comments
  • ChipperJune 5, 2017"It is interesting to hear Tradeweb say that one of the bifurcated OTC markets they offer (U.S. Treasury Securities) may be poised to converge into a non-bifurcated marketplace open to all participants. After all, it is Tradeweb that has kept these markets bifurcated at the behest of the traditional dealers. I agree that the emergence of non-traditional dealers in the Treasury market has the potential to move it towards an all-to-all model, but it will be very difficul…"
  • Goose
    GooseJune 2, 2017"I agree that the PTF/HFT can become more of a counterparty for the buy side, they are indirectly doing it now thru the IDB screens. However, unless they decide to begin to warehouse risk on a large scale, they will be provide liquidity for the threshold size they feel comfortable holding very short term. So off the run issue market making does not seem to fit that bill, nor large size on the run. I could see the LOB growing in volume for on the runs as you have more c…"
View More Comments
Join the Discussion

Dealer Balance Sheets and Corporate Bond Liquidity Provision – Liberty Street Economics (Fed Blog)

Author: \ May 25, 2017 \ 1 Comment
Full Article: Liberty Street Economics (Fed Blog)

We link directly the trading behavior of market participants to their balance sheet constraints. We find that post-crisis regulation has had an adverse impact on bond-level liquidity.

Comments
  • Wolfman
    WolfmanMay 25, 2017"Holy Crap! Someone has finally put together all of the data and came to the same conclusion as dozens of credit traders around the world. Increasing restraints on balance sheet lead to diminished liquidity provision by the dealers. Who'd a thunk?…"
View More Comments
Join the Discussion

A $500 Billion Dollar Investor Developed ‘Cutting Edge’ Technology, and Now it is Sharing It – Business Insider

Author: \ May 17, 2017 \ 14 Comments
Full Article: Business Insider

AllianceBernstein has sold the intellectual property and technology behind ALFA to Algomi, a fixed income data platform. AllianceBernstein is also taking an undisclosed minority stake in Algomi and a seat on the board.

Comments
  • Mustang
    MustangMay 25, 2017"The only way to commercialize this quicker is if the technology stack is in alignment with Algomi's technology stack. If not, then this could be very tricky. This also assumes that the software is ready to be commercialized. How it was built for AB may not be in line with commercial purposes. I suspect it's not ready, but time will tell. Despite the buzz, I wonder what timelines T.Rowe, BBH and others were given for an implementation. I got money on '18. A point of cl…"
  • ChipperMay 25, 2017"I don't disagree with everything you're saying, but much of it I do. Please know that my intention is not to attack YOU, but rather to point out where I think your assessment may be flawed - at least in my humble opinion. First, I do not believe any firm will be successful using ALFA (or an ALFA-like system) if it is forced onto the desk of traders. That will never work. Traders need to see the value in using it. I think AB has solved this issue as their traders see a…"
  • Mustang
    MustangMay 25, 2017"To be clear, I don't either like or dislike Algomi. I have been both critical and supportive in the past. I solely comment on market structure with the intent of creating dialogue. I wish them well, but I don't think their good execution has much of an effect on ALFA's success. Somehow, you are conflating the realities of fixed income culture and whether you think I am suggesting Algomi should be on the hook to change that culture. I don't think that at all. I think t…"
  • Goose
    GooseMay 24, 2017"ALFA is definitely a product that can help the buyside navigate. I, and it seems others are puzzled by the choice of Algomi as a dance partner, given what is known about Algomi's success so far. Best of luck to them both. Perhaps a good product in the hand of master marketers will now equal success. The market will decide.…"
View More Comments
Join the Discussion

Hedge Funds Are Facing a US Criminal Probe Over Bond Valuations – Bloomberg

Author: \ May 11, 2017 \ 5 Comments
Full Article: Bloomberg

By carrying securities on their books at artificially inflated prices, hedge funds can show better performance. They can collect more in management and performance fees — or hide poor performance for certain holdings.

Comments
  • Charlie
    CharlieMay 15, 2017"There are two separate (hard) problems here: bad apples and bad prices. On bad apples: As several others have pointed out, if there's a way to tip the scale, someone somewhere will do it. So make it impossible to tip the scale. Not trivial, but it can be done with some clever design. Minimizing direct human influence on the pricing models should help. See Libor as a great example of what NOT to do. Make the pricing model sufficiently complex that individuals find it h…"
  • Goose
    GooseMay 12, 2017"All good points here. The worst thing for the markets will be if the press, incumbents, and regulators see something like this and trot out that exhausted bromide, “MORE ELECTRONIC TRADING WILL SOLVE THIS AND CREATE THE TRANSPARENCY!” FI markets, from structured up the ladder, need to start with the building block of execution, more organization around pretrade information.. Can games be played in inherently illiquid securities with few price points,, most definitely…"
  • Mustang
    MustangMay 12, 2017"If there are incentives to shade something in someone's favor, they will always err on the side of shading it in their favor. If you add in difficulty in discerning "fair value" and limited negative consequences, then you've got a recipe for widespread abuse. That said, this issue seems to be exacerbated by the (a) consolidation in the pricing space that has created a market oligopoly and (b) the lack of transparency and complex nature of bonds to evaluate bonds and (…"
  • Jester
    JesterMay 12, 2017"Bond valuation corruption again? Yawn. Unfortunately, this article gives a false sense of just how wide the problem could be. This is not isolated to “illiquid securities” and this blatant inflation of valuations has not become more pronounced because investors are pulling out of hedge funds. This is an every day problem in a market that has no real method for figuring out current value…objectively. Under the hood of the bond market is a process where billions of doll…"
View More Comments
Join the Discussion

Voice Communications Solidifying Role in Institutional Trading – Finance Magnates

Author: \ May 5, 2017 \ 5 Comments
Full Article: Finance Magnates

Approximately 90 percent of the trading professionals participating in a 2016 Greenwich Associates study utilize voice communications in electronic trades, primarily for post-trade interaction.

Comments
  • Charlie
    CharlieMay 9, 2017"Nice and concise. 100% agree. The million dollar question, then, is: What value does voice provide to institutional investors that electronic doesn't yet, and how deep/wide is that moat? A couple thoughts: 1. Belief that sales-trader has even a tiny bit of useful information. I have to pay a commission to someone anyway, if I can save half a penny on 1mn shares I'm coming out ahead, right? This perception can easily be confirmed once or twice -- either by chance or by…"
  • Iceman
    IcemanMay 8, 2017"Unsurprisingly I fully agree with the comments already made. Execution over chat and phone is still heavily utilized given the bilateral nature of the market and getting color still remains a key part to executing the trade. In EMEA with MiFID II looming all electronic trading platforms are lining up to tell the Buy-side they must execute across an MTF / OTF etc. otherwise it will all be so much more costly, so much harder, the world will end!!!!!!!..... in reality th…"
  • Goose
    GooseMay 5, 2017"“Even in U.S. equity markets, often viewed as one of the most electronic markets in the world, high-touch trading, or single-stock trades routed to a sales trader, still represents the largest execution channel.” Let the above quote sink in. We’ve been banging this drum since the founding of FNL. If this is this is where the most organized, regulated, and liquid market ends up, what are the prospects for electronic trading in the large majority of FI products? The ans…"
  • Wolfman
    WolfmanMay 5, 2017"I think I could have summarized the findings of a study related to the future of voice in trade execution as follows: as long as people receive a value to speaking with a person that is greater than any incremental cost associated with paying that person for the said value, voice will survive.…"
View More Comments
Join the Discussion

A Review of The Economist Article on Corporate Bonds

Author: \ April 26, 2017 \ 6 Comments
Full Article: FridayNewsletter Discussion Board

Last week the Economist wrote an “article” about the future of the corporate bond market. The piece was so interesting, that this week the Friday Newsletter is presenting reviews of the Economist article from our exclusive team of market structure experts, the 10,000 Hours Team.

Comments
  • Wolfman
    WolfmanMay 1, 2017"There's a lot of anger in this week's discussion. C'mon guys, have a little patience with these guys - they've only been around since 1843! Yes, yes, they have a broad and diverse reader base and yes, yes, they need to keep things at a high-enough level to deal with the aforementioned diverse reader base to understand. Ok, the corporate bond market (the credit market for readers of Friday Newsletter) has been the focus of tens of millions of dollars of VC money and co…"
  • Jester
    JesterApril 28, 2017"A pet peeve of mine is articles that present as news and facts, but are really poorly researched commercials. Make no mistake my friends, this piece by The Economist IS a commercial and it reads like the “reporter” spoke to a single, biased, source. So allow me to help set the record a little straighter than the limp fusilli that is this piece. All to All trading in corporate bonds is in no way a new concept, but all to all RFQ trading is. Bravo to MarketAxess for bri…"
  • The DukeApril 28, 2017"If you want to see platforms' market share and performance over time look at the research on The DESK - https://www.fi-desk.com/focus-on-preferred-platforms-intensifies-competition/…"
  • Sundown
    SundownApril 28, 2017"I read The Economist in college. I'm going to my reunion soon, and I must say I read this article as if The Economist had missed all that's happened in the subject matter or simply got it wrong, for the most part. Serious, completely non-factual falsehoods have me wondering if this is the Wall Street version of "false news". But let's just chalk it up to incompetence. It's a shame the importance and of the meaning of the advent of all-to-all trading's potential to be…"
View More Comments
Join the Discussion