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Electronic Bond Trading in the US Market: New Celent Report

The US fixed income market has experienced impressive growth over the past decade, with revenues rising from US$12 trillion in 1996 to $29.2 trillion in 2007. Since 2003, the market has become increasingly electronic. Electronic trading currently represents more than 60% of the fixed income market.

The US fixed income market is the largest global marketplace, with over US$27.4 trillion representing approximately 40% of the global fixed income market. It has undergone dramatic changes and become increasingly electronic. The development of electronic trading occurred largely in the US treasury and mortgage-based securities (MBS), which are the most liquid fixed income segments. Currently, electronic trading encompasses more than 60% of the fixed income market, experiencing a CAGR of 19% since 2003. This trend of increased electronification will continue, but will be unequally adopted across different instrument segments.

A new Celent report, Electronic Bond Trading in the US Market, focuses on the evolution of the US fixed income market both as a whole and by instrument segments, evaluating their growth and relative sizes. It also analyzes the development of electronic fixed income trading that has occurred in both the interdealer market and in the dealer-to-client market segments. In addition, new market trends are identified and analyzed.

"Liquidity and transparency are important drivers for electronification in the fixed income market," says Perrine Fiorina, Celent analyst and author of the report. "Consequently, liquid instruments like treasury and MBS saw greater rates of automation than relatively illiquid instruments like corporates and municipals. However, new developments like TRACE should help to close the gap."

Other key findings of the report include:
• The US fixed income market should reach US$35 trillion by 2010.
• Electronification in the US fixed income market should increase in 2010 to 90% of the treasury segment, nearly 35% of MBS, 16% of federal agency securities,12% of corporate bonds, and 10% of municipal bonds.
• Major trends include developments towards multiasset trading, expansion into new markets and more product offerings like OTC derivatives, increased focus on value-added services and reintroduction of the exchange model in fixed income trading with NYSE Euronext Bonds’ platform.

This report also compares and profiles two leading electronic fixed income interdealer platforms: Brokertec and eSpeed, two leading dealer-to-client platforms: TradeWeb and MarketAxess, and a new entrant in the electronic bond market: NYSE Euronext.