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Trade flows in US fixed income are driven by analytics, algos and AI

US fixed-income dealers are investing heavily to meet investor demand for electronic trading. But the nature of that demand is changing. Institutional investors today aren’t just looking for electronic execution. Instead, they are looking to partner with dealers who have the best pre- and post-trade analytics, deepest data, and advanced electronic tools.

All of the 2019 Greenwich Leaders in US Fixed Income have continued investing in their electronic offerings with the features and capabilities required to meet those changing needs and attract institutional trading volumes. In Overall US Fixed–Income Market Share, Citi takes the top spot followed by a three-way tie among Goldman Sachs, J.P. Morgan and Morgan Stanley, with Bank of America Securities rounding out the list. The 2019 Greenwich Quality Leaders in US Fixed Income are Bank of America Securities, Citi and J.P. Morgan.

These dealers know that electronic infrastructure is becoming an increasingly important factor in the competition for US fixed-income trading business. In the months covered in the Greenwich Associates 2019 US Fixed-Income Investors Study, the proportion of secondary investment-grade credit volume trading over e-channels was in the 25-28% range, while high yield hovered in the low teens, according to Greenwich Associates. 

“Numerous factors are contributing to this growth, including the ongoing increase in ETF trading volumes as well as more odd-lot trading resulting from the broader trend toward index investing,” said Greenwich Associates managing director Frank Feenstra. “E-trading in emerging-markets rates and credit, and in short-term fixed income, also increased year-over-year.”

The growth of e-trading and the more recent emergence of data analytics, AI and other electronic tools as core business imperatives for investors have together elevated the importance of dealers’ electronic offerings. However, as sell-side investment in e-tools grows, top-calibre traders and analysts can help dealers differentiate themselves from the competition.

“In an electronic age, a personal connection created by a trader visit can be the thing that gets a dealer the first call,” commented Greenwich Associates managing director James Borger.

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