US banks continue to rank on top in European fixed income and some - most notably Bank of America Securities and Morgan Stanley - captured meaningfully more market share this year. US banks now account for four of the seven dealers in the list of 2019 Greenwich Share Leaders in Overall European Fixed Income.

At the top of that list is J.P. Morgan, which ranks a clear first in market share. Citi is second, followed by Barclays, Goldman Sachs, and then the trio of HSBC, BNP Paribas and BofA Securities, which are statistically tied in fifth place.

US banks also top the list of 2019 Greenwich Quality Leaders. J.P. Morgan is the 2019 Greenwich Quality Leader in Overall European Fixed-Income Service Quality as well as in Research and is joined by Citi as a Greenwich Quality Leader in Sales and Trading.

Market leaders in fixed income share several interrelated attributes - strong balance sheet, scale and the ability to invest in and deploy supporting technology. As e-trading and digital tools become a bigger part of the marketplace, European fixed income is increasingly becoming a scale business.

“In this new environment, banks with the biggest and most sophisticated global technology platforms have a significant advantage,” says Greenwich Associates principal, Satnam Sohal.

Tech advantage

E-trading grew to 45% of overall European fixed-income trading volume in 2019 from 38% in 2018. Well over half of corporate bond volume and more than 60% of government bond trading volume is now priced and executed via electronic platforms. Over the past 12 months, growth was driven by rates, both G10 and emerging markets, across both cash and derivatives. Dealers that have historically invested in infrastructure to support quoting on multidealer platforms are making strategic investments to support evolving investor behaviours, including: 

1. Auto-pricing. Automated pricing of corporate and government bonds is now a requirement to be a top player. As e-trading has grown, so too has the number of inbound requests for quotes dealers must respond to on any given day. It has become impossible for a human trader to respond accurately and quickly enough to remain competitive. As such, auto-execution of such trades has become the norm, and Greenwich Associates expects continuous, streaming prices to grow in Europe as they have begun to do in the US.
2. Portfolio trading. The growing importance of fixed-income ETFs has catalysed increased interest in portfolio trading of corporate bonds. Portfolio trading isn’t for everyone, but it will certainly play a part in growing market share going forward.
3. Streaming. Though still nascent, dealers are beginning to offer select clients direct streaming prices in fixed income via APIs. Both order management system (OMS) and execution management system (EMS) technology make it possible for investors to aggregate dealer streams and mimic the multidealer liquidity offered by existing multidealer platforms - common practice in the FX markets. As bid-offer spreads in fixed income narrow, there is increasing economic incentive for dealers to provide direct liquidity to clients without intermediation of the platforms and incurring platform fees. It is still early, but the report suggests that this trend is likely to grow.