While the U.S. corporate bond market continues to be dominated by the top dealers, Greenwich Associates data* suggests that institutional investors are beginning to explore new liquidity providers in the secondary market. 

The report finds that institutional investors are taking tentative steps to utilise other sources of liquidity to execute corporate bond trades and are forming new trading relationships through electronic trading platforms. The average number of dealers used is up 35% since 2009, although the market continues to be dominated by the top dealers. 

Trading patterns

Greenwich Associates believes electronic trading of lots between $100 thousand and $5 million in size will continue to grow in the coming years, with the potential to take the market-wide percentage of volume traded electronically to 20% by 2016. 

Growth in electronic trading of block trades - those over $5 million - will be a much more challenging endeavor, says the firm, as these trades are the ones that the buy side brings to dealers via phone, not only for market colour and liquidity, but also to build up a relationship that ensures access to sought-after new issue allocations.

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* Between February and April 2014, Greenwich Associates interviewed 1,067 U.S. institutional investors active in fixed income investment. Interview topics included trading and research activities and preferences, product and dealer use, service provider evaluations, market trend analysis, and investor compensation.

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CTMfile take: This is yet another illustration of how the demand for corporate bonds is increasing.