More than a quarter (26 per cent) of corporate bonds traded in the US in the third quarter of 2018 were exchanged on electronic platforms, according to Greenwich Associates. This is an increase from 19 per cent in Q1 2018. According to the market intelligence and advisory firm, the US corporate bond e-trading market has already stabilised and according to the company's Kevin McPartland, author of of the report, Corporate Bond Trading in 2019: Competition is Good, Complexity is Not, the “boom in new corporate bond trading platforms is over”.
It found that the e-trading volume is being captured by a handful of large platforms, with MarketAxess taking the lead. The report notes that although there might appear room for competition, history shows that market participants dislike the “complexity that comes with integrating countless liquidity and data sources”. Kevin McPartland commented: “All of this points to more mergers and acquisitions among the platforms over the next 18 months.”
The report also found that institutional investors still send 56 per cent of their bond trades through the top five dealers, although they are also sending more business to middle-market and regional dealers who, according to Greenwich, “have stepped in to pick up the slack as bulge-bracket dealers refocused their businesses on sectors and clients that provide the best ROI”. The report found that non-bulge-bracket dealers now account for one-quarter of client trading, up from 14 per cent in 2013.
The report also says that investors are taking advantage of new liquidity sources. It gives the example of a number of principal trading firms and some quantitative hedge funds being attracted to the corporate bond market by the profit opportunity presented by fixed-income ETF arbitrage strategies. McPartland added: “Institutional corporate bond investors have voted with their feet, utilizing those tools that work best within the current market structure.”
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