The Transformation of the Bond Market
Dan Barnes

The Transformation of the Bond Market

Europe had led the race to electronify credit trading, but the US has overtaken on automation. Dan Barnes reports.

Automated trading of corporate bonds is coming; look busy. Thanks to the sophisticated price streaming activities of both traditional and electronic market makers, buy-side desks can potentially move to low- or no-touch execution for certain liquid assets.

The potential of streaming prices in this context may be to shift trading of small ticket, highly liquid orders into bilateral execution. For buy-side traders seeking validation of best execution that will require a stable source of pricing in order to certify such trades, where price is the best execution parameter.

“Maybe, when we get the consolidated tape [of bond prices in Europe, a report on which will be presented by 3 September 2021] we can get one aggregated provider of all data, and I think the costs will then come down,” says Stuart Campbell, head of trading, BlueBay Asset Management. “There is a push now for direct connectivity between myself and the banks, and I think the fallout from that will be, I don’t need to use one of the big three platforms to trade, if I can have five or six direct feeds.”

The caveat is that these developments are largely found in US investment-grade credit, reversing a long bias towards greater electronification in the European markets.

Paul Reynolds, head of fixed income at execution management system provider, TradingScreen, says, “The US buy-side is racing ahead, investing in technology, very clear of what they want, why they are doing it and what the outcome will be. European clients are perhaps less clear in their minds about what the future is. Yet when we describe what the Americans are doing, Europeans see the sense in that approach.”

Certainly, European banks are stepping forward to offer similar services to their buy-side clients. Where electronic trading had once referred largely to the request-for-quote model, which migrated the voice trading workflow to an electronic format, the potential now exists for asset managers to fully automate some of their execution, and dealers see this as a game-changer.

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