Fixed Income Liquidity to be More Centralized – Markets Media
June 3, 2016 \ 7 Comments
Full Article: Markets Media
GreySpark predicted how the structure of the fixed income market could change as a result of regulation, reduced market-making capacity from banks and new ways of trading bonds and swaps.
I did find one clause in the article which made sense to me; “the corporate credit market in particular is attempting to continue to eek profitability from a market structure that is increasingly not fit-for-purpose,”. The proliferation of electronic platforms, combined with recent regulation has only served to fragment liquidity further and exacerbate a stressed situation in my opinion. It is like having a field of 10+ candidates for a party leadership nomination, things look really confusing for a while until finally the majority throw in the towel and before then its painful for everyone. The situation is getting worse… Read more »
I liked this article and found nothing I would disagree with. However it did make me think about one of the phrases. To recap, regulation is forcing change to market structure and workflow while the banks are clinging to the past. While liquidity may centralized around a number of hubs it was interesting to read about the success of increasing the velocity of trading. Yes, that makes sense but it is also damaging. Dealers may well be happy taking on risk and turning over bonds faster, but only if they understand the risk well. The natural corollary being that while… Read more »
“So, Greyspark has ended up at the same conclusion I’ve had for a while. Dealers need to quote fewer bonds and improve specialization. Days of being ‘master’ of 150 bonds is gone, it needs to be whittled down to 25-35 at most. Perversely that appears to mean less competition for the buyside yet the reality is: 3 valid quotes versus the mirage of 10 flakey quotes. Dealers execute if they have confidence, confidence comes from knowledge and insight.” YES! YES! YES! Bulge brackets have historically been the “Walmarts” of FI trading. I remember watching an exchange once at a bulge… Read more »
Charlie and Cougar, did you read the same article I did or did you give your passwords to someone else this week? Ok, I haven’t read the report so can only base comments on what Markets Media says Greyspark is stating. Let’s start with the opening, “FI trading COULD become more centralized….PROVIDED large market participants change their behavior….”. Wow, earth shattering. Now if Mr. Dinnage wanted to take a stand and use ‘will’ and ‘as’, woujd then be interested in hearing why he thinks that. Otherwise, you can pontificate on whether this will occur all you want as people have… Read more »
Not having read the entire Greyspark paper and perhaps it’s covered there, but there seems to be a lot of talk as to the “how” and “what” people will trade, but not the “why”. Recent reports from the CME proudly state that Treasury futures are gaining on cash Treasury volumes, and that, to me, brings us to the “why”. The predictions that the govie market will become all-to-all in nature makes sense, but if we consider why the buy-side trades bonds then it actually may not. Why are you trading a rates product? If it’s to make a bet on… Read more »
With the caveat that I didn’t buck up for the full report, a couple of thoughts. “..the fixed income industry is shifting from a principal-based business leaning on inventory and risk to an agency-to-agency model and the buyside-to-buyside trading model will continue to develop, but remain very limited compared to trading involving the taking of principal risk.” Amen. How come fully electronic venues, with centralized price discovery, and incredibly liquid products don’t have buy siders trading a large % of the market with each other. It would seem to offer everything they need to do so? “Both factors suggest that… Read more »
I think that Greyspark/Greyspark press department got the wrong end of the stick. It’s the Markets Media lack of journalistic edge which makes the story for me.. But then again..
Blackrock’s Richard Prager: The Liquidity Is Out There – Institutional InvestorMarch 18, 2016
Everyone is Worried About the Thing Markets Need Most, But They’re Not Asking the Right Questions – Business InsiderMarch 25, 2016
US Companies Overpaying for Bonds; Banks May Be to Blame – ReutersMarch 31, 2016