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Everyone is Worried About the Thing Markets Need Most, But They’re Not Asking the Right Questions – Business Insider

Author: \ March 25, 2016 \ 5 Comments
Full Article: Business Insider

 

The bond-market-liquidity issue is a complex one, and it often seems that market participants are talking at cross purposes, and/or touting their book. 

Comments
  • Mustang
    MustangMarch 26, 2016"Few comments: 1. Blackrock talking about a looming liquidity crisis makes them an outlier and may have put a stutter step in its' FI inflow. You don't hear many other buyside firms talking about the impending liquidity landmine. "Hey guys, we were just kidding about that liquidity stuff. Everyone in the water... it's just fine." 2. Regulators are almost handcuffed to say that liquidity is good. Otherwise if it wasn't ok, then it would be their fault. Decreased liquidi…"
  • Jester
    JesterMarch 26, 2016"First of all, an article on recent statements on liquidity with no mention of Blackrock’s 180 degree turn on this topic?.....move on, nothing to see here. There is so much to say about this topic, but I am halfway through a bag of Cadbury Hard Shell Eggs, so I am going to deliver the Cliff’s Notes version for you dear readers. Liquidity is the most misunderstood topic in financial markets today. 95% of what comes out of people’s mouths is either flat out wrong or insa…"
  • Wolfman
    WolfmanMarch 25, 2016"Here's the thing: Most investors care about trading in size and trading when markets are moving dramatically. In both these key areas, markets appear to be in much worse shape. Can fixed income be sliced and diced into small pieces like FX and Equities and operate as an order-driven market? If so, there is no liquidity problem. It can't and there is. The very nature of the market cries out for a liquidity provider role and as persistently low rates and increasingly re…"
  • Goose
    GooseMarch 25, 2016"It's a closed market Friday, but the FNL is keeps on trucking. The emergence of huge new issue deals, and having TRACE as the only statistic for measurement has fed into the concept that the market liquidity is fine. Issue size and participant breadth lead to more interest in transaction. This leads to a lot of TRACE prints, which leads to dealers feeling comfortable knowing where the market is and the bond’s liquidity profile, which leads to tighter markets and for d…"
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Blackrock’s Richard Prager: The Liquidity Is Out There – Institutional Investor

Author: \ March 18, 2016 \ 11 Comments
Full Article: Brightcove Video

“At Blackrock we don’t believe there is a liquidity crisis whatsoever. We say that based on our own observations.” CLICK HERE FOR VIDEO 

Comments
  • CelticBond
    CelticBondJuly 23, 2016"Cougar, what I find interesting are the claims of all especially new Credit platforms regarding the 'liquidity' they have & posting increasing volumes. As you say just posting a price & some size does not that position a tradeable position. Having asked those I know at the main platforms their emplyees are doing a bang-up job in defending the bosses position in saying 'we are doing good & volumes are up!'. Wel maybe in IRS were the DOdds_Frank dictate says…"
  • Voodoo3
    Voodoo3March 22, 2016"‘Based on our own observations’ is the key to this paper. From there onwards there isn’t really much to add. It’s just an advert.…"
  • Jester
    JesterMarch 20, 2016"The punchline from this entire interview is: “based on our own observations” Yes, from a certain “observation” there is absolutely nothing wrong with the corporate bond market provided that: A) You are always a net buyer of bonds B) There is a consistently active calendar of new issue deals C) You consistently receive the lion’s share of allocations on new deals If that’s your world, then why complain? Just keep chuckling all the way to the bank….. Oh, one last thing.…"
  • Mustang
    MustangMarch 20, 2016""We don't believe there is a liquidity crisis whatsoever": Of course not. Well at least not today anyways. Blackrock sees an outsized share of the inflows and is also able to soak up its inflows with an outsized portion of new issues. Sure, maybe they can't access all the liquidity they need in secondary markets, but based on today's large primary flows, their liquidity needs are largely served. I also wonder if Blackrock traders told Richie to quit playing up the liq…"
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ICAP Unveils CrossTrade: A Solution on its New Buy Side Portal (TrueQuote) – Automated Trader

Author: \ March 10, 2016 \ 7 Comments
Full Article: AutomatedTrader

Working in partnership with fixed-income data provider, Interactive Data, CrossTrade is a workflow efficiency tool which enables buy side customers to execute cross trades at an independently determined mid-price.

Comments
  • Merlin
    MerlinMarch 11, 2016"I don't really know what to say since all it tells me is that ICAP is launching a new product, CrossTrade, within its new buyside portal, TrueQuote, that is meant to be "a workflow efficiency tool which enables buy side customers to execute cross trades at an independently determined mid-price". What is the workflow? Does it really provide efficiency and if so, how? What is the trading protcol one must utilize to execute a trade? And what makes ICAP think that people…"
  • Goose
    GooseMarch 11, 2016"I am late to the party, looks like all I can do is nod and expand a little the following points. -Is an independent benchmark enough to get buyside to trade? How much transparency does IDC give into their methodology, and how does using these benchmarks tie into fiduciary responsibility vs. market quotes? -How much more can the dealers take of watching data vendors collect their quote data without asking, and make a fortune selling it back to them and others? Then con…"
  • Jester
    JesterMarch 11, 2016"Let me get this straight, after building a successful business helping dealers hedge risk and price liquidity, your strategy is to now partner with a vendor of an “independently determined” pricing service to help buy side clients trade away from your dealer clients?......Et tu Brute?.....Et tu? I agree Iceman, the most interesting thing about this deal is the source of the mid price date itself. But Ice, the dealers aren’t “giving away” this information, it is has be…"
  • Iceman
    IcemanMarch 10, 2016"The IDC pricing piece is the most interesting for me. At what point are dealers going to stop giving away one of their biggest assets (their data) for free to firms whose only intention is to dis-intermediate them? ICAP crossing mechanism will be another tool in the tool kit of the Buy-Side execution trader but unless a large AM decides to back the platform by supplying significant liquidity (often times at a loss) I do not see how it changes the status quo. And I wou…"
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Tradeweb Acquires CodeStreet LLC – PR Newswire 

Author: \ March 3, 2016 \ 12 Comments
Full Article: PR Newswire

The acquisition of CodeStreet enables Tradeweb to pair effective trade execution and processing with better trade identification tools for the buy-side and enhanced workflow management for liquidity providers, which will enable buy-side investors to better source liquidity.

Comments
  • Mustang
    MustangMarch 7, 2016"Another thing I don't understand: What sellside or buyside firm would disclose more info to a transaction platform? I could have sworn that I read something about information leakage being bad. Isn't TW just an idb with an electronic front end? Their goal is to DO MORE TRANSACTIONS. What sellside or buyside firm would open their kimono to a voice broker? Isn't this also true about MA? Why would users pay for the privilege of giving up more inside information only to b…"
  • Avatar
    RatMarch 4, 2016"Old tech meets old tech? Use of DealerPool could be interesting...however, innovation at Tradeweb has historically been applying RFQ to different products. Will governance allow something more innovative to happen? Not to mention the challenges of integrating the acquisition. Probably more in the Iceman camp on this one.…"
  • Merlin
    MerlinMarch 4, 2016"More thoughts. Codestreet has been shopping itself for years. What changed at TradeWeb leading to an acquisition now? TradeWebs progress since its re-launch in Oct 2014 has been underwhelming. A leadership change in their credit business last year has not appeared to produce any significant changes to this point. Their 'streaming quote' initiative was the wrong thing at the wrong time (everyone seemed to know that except TradeWeb). Their 'me too' approach at a lower p…"
  • Mustang
    MustangMarch 4, 2016"Great. I need a new keyboard. Pirates?!? Aaaarrrggghh matey! https://www.youtube.com/watch?v=He-LBIyBUz8 CS has a robust tool, though that comes with longer integrations. I don't see bulge brackets deploying this with their info in the cloud. It also does not have MA RFQ's. If MA significantly increased the value prop of their sales tool, then along with MA RFQ's in its sales tool, it would be that much more difficult for others to gain traction against. fka Viper Vip…"
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Electronic Bond Trading Platforms Seek to Attract Larger Orders – Bloomberg

Author: \ February 25, 2016 \ 8 Comments
Full Article: Bloomberg

Electronic platforms are trying to change a system where, for decades, buying and selling has taken place over the phone among investors who prize discretion in the thinly traded market.

Comments
  • CelticBond
    CelticBondMay 5, 2016"In Europe the Govt eTrading orders are significantly down for the last 5+ years. All in Euroland claim that their volumes with the smaller orders are picking up this gap which I doubt. Also many are saying volumes n their IRS platforms which a widers product group covered is picking up the slack?…"
  • Merlin
    MerlinFebruary 26, 2016"The answer is not in the platofrms. The answer lies with institutional investors. Are they willing to move their business to electronic platforms and what are the factors that influence this decision? That is, what problem is being solved. Are they able to get better execution levels on a more frequent basis on the orders they place vs. the information leakage that may be divulged on those orders that do not get executed. We can assume that the information leakage on…"
  • Goose
    GooseFebruary 26, 2016"I echo Jester’s thoughts here. Have operators studied the markets they are trying to imitate? Even in the most liquid markets with standardized price discovery round lots don’t trade electronically. Dark pool average trade size is a couple of hundred shares. It sounds like the thought process is customers + electronic connectivity +lifting protocols from other markets that haven’t there worked for round lots = ROUND LOTS HERE! Maybe this time it’s different…..anyone k…"
  • Avatar
    Byron C-FFebruary 26, 2016"" Maybe, just maybe trading notional sizes >=$5MM in markets that have very little activity require skill, judgement and experience, something that a push button solution may not be able to solve……" totally agree, Jester. That is why our platform isn't push-button, although you do get to push some buttons if you like. We also start at 2 M in EUR, USD and GBP - the size credit trading businesses here deemed to be the start of block. As for no clients quoted in the a…"
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Has Bond E-Trading in Europe Hit the Ceiling – Greenwich Associates  

Author: \ February 18, 2016 \ 6 Comments
Full Article: Greenwich

Electronic trading in IG corporate bonds in Europe still dwarfs the US.  Greenwich Associates data shows that in 2015 20% of client volume in the US was traded on screen compared to Europe’s 46%.

Comments
  • Iceman
    IcemanFebruary 20, 2016"A lot of great points raised by all and hopefully the below will add another slant. In the US there is TRACE (surprise right) and if you are a market maker you can make some pretty good assumptions on your market share in volume and trades 'if' a client wants to benchmark you (outside your primary biz.....) or you want to go and push the client to show you more flow. Now lets look at Europe which has........ electronic trading across multiple platforms with no 1 spot…"
  • Avatar
    ViperFebruary 20, 2016"The lead article speaks volumes about the way ALLQ is dominating in Europe and how differently electronic corporate bond trading is effectively marketed in each region. No one in the US has ever developed a platform that incentivizes a dealer to show inventory and pricing by connecting a client's inquiry to a dealer's information. Despite all of the new ideas and platforms out there, a simple targeted ALLQ-like system with spread based trading may do very well in the…"
  • Goose
    GooseFebruary 19, 2016"What I am trying to understand is, what is the value of a dealer paying a large fixed fee for RFQ flow that hundreds of firms (some quasi sell side) can see for a fraction of the cost? Paying a fixed fee for discretionary order flow has definite value worth paying for (can debate that value). Pay per trade would make more sense. Will this move to all to all put a damper on RFQ growth in the US…or maybe this is a case of Sonny in a Bronx Tale, “Now youse can’t leave”.…"
  • Merlin
    MerlinFebruary 19, 2016"Jester brings out an interesting point and I will defer to him on the accuracy of his statements. Personally I have never got this impression. It always seemed to me that actually more european accounts would pounce on an error than give the dealer a heads up of their mistake (and Jester does talk about abuse). I think the development of e-trading may have to do more with the make up of market participants and how it has evolved over time. There always was, and contin…"
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Bond Trading Desks Get a Hand From Algorithmic, Equity Veterans – Bloomberg  

Author: \ February 10, 2016 \ 7 Comments
mad-scientistA growing group of executives with algorithmic or equity backgrounds tasked with adapting banks’ fixed-income trading to a tougher business environment. FULL ARTICLE 
Comments
  • Merlin
    MerlinFebruary 17, 2016"Cougar, are your last two sentences serious or tongue in cheek?…"
  • Avatar
    CharlieFebruary 16, 2016""A lot of conversations will be taking place that never would have happened before"...... Such as "what to you mean it may not trade at all?", "what time does the market close", "there is no NBBO?" or "explain duration again". Of course I exaggerate and there are some best practices that can be transferred between the two e.g. FIX connectivity, recovery of messages etc. Algorithm technology maybe less useful than initially thought possible given the available data and…"
  • Goose
    GooseFebruary 12, 2016"Groundhog Day! “That way is ridiculous and inefficient, do it THIS way!” The Ferrari is an awesome car, and if you already have one that works, let’s drive it in this market, cost efficiency and scale!! Nice idea, but in a world with minimal infrastructure, roads, or rules, that car can’t get anywhere, and the current modes of transportation are built and work for that world. Sure there are tools from those markets that can help. However, it’s hard to not let your ego…"
  • Cougar
    CougarFebruary 12, 2016"E-trading fixed income is a great idea. It would greatly ease our workflow and simplify the audit trail for compliance best execution. The situation today in cash credit is nowhere near where we want to be and its current implementation arguably is actively damaging the functioning of the market. Currently quotes on many of the electronic screens in sizes of 100k or 250k are really valuations than bids & offers. Attempting to sell 5MM or more, a standard block in…"
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Thriving ETFs May Be Stoking a ‘Liquidity Illusion’ for Bonds – Reuters

Author: \ February 3, 2016 \ 5 Comments
IllusionFlows into exchange traded funds with exposure to fixed income markets are at record highs, a boost to thinning market activity but one that some fear could become a source of volatility. Full Article
Comments
  • Chipper
    ChipperFebruary 5, 2016"Fully agree with Charlie here, will put. I think it likely that individual investors are using ETFs as a liquid alternative to mutual funds, and that is a great development for the investor. The liquidity fears have not yet come to pass despite many volatile market days with robust ETF activity. At the TABB forum last week, on an ETF panel they noted that during the biggest drop in the HY market in January, 95% of the HY ETF volume was internalized at the exchange - i…"
  • Merlin
    MerlinFebruary 4, 2016"Did a little digging and if my numbers are right the largest HY etf has a daily trading value of just over 1B while the largest Hg etf is 400mm. I guess to be fair you may want to add up all the volume in each category but I find this interesting. It seems the less liquid HY market has an ETF with very significant volumes to the cash market whereas HG does not (pls correct me if I have this wrong). Guessing this means that the illiquidity of the hy cash market makes t…"
  • Wolfman
    WolfmanFebruary 4, 2016"If people view ETFs as liquid and then apply that view of liquidity to the individual bonds, then yes, it is an illusion. ETFs are a wonderfully designed product designed to add yet another revenue stream for the APs responsible for the redemption/creation cycle. Is it abundantly clear what the cost of the underlying bonds are? Not really, but it is clear what the cash flows are and the yield is, so it seems that, like all things capitalistic, the market has decided t…"
  • Goose
    GooseFebruary 4, 2016"Searching for news articles, there seemed to be instances where even equity ETF’s have experienced large dislocations during periods of volatility and heavy retail selling. For fixed income ETF’s, the transparency, market makers, wider distribution, heterogeneous investing community, arbitrage mechanism all make a generic case for ETFs being a superior liquidity vehicle for expressing a FI risk view. Given the equity look and feel, if there is a liquidity illusion I a…"
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Predicting the Death of the Bloomberg Terminal – Waters Technology

Author: \ January 27, 2016 \ 6 Comments
Bloomberg TerminalsBloomberg terminals are like cable television. Streaming services like Netflix, Hulu, HBO GO and Showtime Anytime have become staples in many people’s homes and caused them to question whether or not they actually need to pay for cable. FULL ARTICLE 
Comments
  • Avatar
    CharlieJanuary 29, 2016"People love to hate Bloomberg and therefore avidly read stories about its potential demise. The analogy of the cable TV subscription is interesting, I would beg to differ that messaging is the only reason people keep subscribing, it used to be in say the year 2000 but in 2015 my theory is that it is more about access to trading, trade prices, trade execution venues, post trade processes etc. For example look at BBGs share of the SEF market. You would like to make pric…"
  • Goose
    GooseJanuary 29, 2016"I am in consensus with the main points here so I will just add my own spin. It starts with their social network. In cash fixed income, you can’t trade without the Bloomberg that is touching that entire community. That makes it extremely difficult to offer any competing product that comes with the base Bloomberg terminal. All the bells and whistles for $1,800 is very compelling. Any piece of functionality/data/cashflows that is the default standard for that social netw…"
  • Hollywood
    HollywoodJanuary 28, 2016"Not to inject politics…ah, what the heck. Trump opined on Bloomberg potentially entering the presidential race this week. He further injected an ego driven net worth comparison (as it pertains to the News Letter topic): Trump stated “"It's a technology company — I mean, if someone came in, frankly, and comes up with a better machine than him, people would stop using his machine," and “I don't even know why other companies haven't come up with a better machine. Why? It…"
  • Wolfman
    WolfmanJanuary 28, 2016"Bloomberg is the social network for the Financial Services industry and although the application leaves much to be desired, the power o the network will be difficult to replace. It can happen, but there are ways in which companies have already reduced the cost of Bloomberg terminals. There are many firms who had asked a simply question to their staff. Is the terminal important enough o you that you would pay for it? In many cases, the answer is yes and employees are w…"
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How Do You Define Bond Liquidity? – Bloomberg

Author: \ January 21, 2016 \ 8 Comments
ThinkerTreasury’s first set of questions, perhaps signaling the importance of a much-debated topic in the market, asks how respondents define liquidity. FULL ARTICLE 
Comments
  • Wolfman
    WolfmanJanuary 23, 2016"My remarks are brief as the others have done a superb job with this week's post. Maybe it was the full moon this week that turned me into a monster, but I see things simply. Governments, companies, people, Wolfmen, all act in their own self interest. If there is a structure that provides a fair marketplace with many participants converging many different needs, it will be a liquid marketplace. If we are going to homogenize the participants and eliminate the opportunit…"
  • Cougar
    CougarJanuary 23, 2016"In defining liquidity we often get distracted into the discussion about the causes and challenges of executing secondary trades compared to the recent past rather than the definition itself. There can be no fixed measure of liquidity as it depends on the product, securities and other variables - this hurts our ability to define it. Liquidity itself has a sliding scale. We know and off-the-run 30Y UST will be less liquid than a 10Y UST. Similarly an off-the-run $250MM…"
  • Zob
    ZobJanuary 23, 2016"Some impressive thoughts and comments so far... but I don't believe the fundamentals have changed... liquidity is primarily a consequence of willing buyers and willing sellers. In this new world -on a good day- with traditional market makers becoming slowly an extinct species (5 have pulled out of Euro Govvies this month!), there just aren't enough willing buyers!…"
  • Avatar
    CharlieJanuary 22, 2016"A great initiative by the Fed. I am tired of different measures of liquidity being quoted by different people depending on which point they wish to prove. If the Fed can get their hands around this one perhaps we can all have a meaningful discussion on levels of liquidity and statistics such as trading volume divided by notional outstanding will be de-bunked for what they are. I wouldn't expect the conclusion on the measure of liquidity to be a lot different after the…"
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