Fixed income traders lean on automation

By Aoife Morgan | 25 March 2021

The average daily volume for fixed income electronic trading reached a new record of $10.6bn in January surpassing the previously set record of $10.3bn in May last year, according to a report by Greenwich Associates, as trading houses rely increasingly on automation.

“A big impact is the migration to home working,” says Tom Britton, managing director at Tradeweb. “Traders don’t have that manual interaction anymore so the information they need is effectively within the platform. And they’re able to use the platform to trade as efficiently as they can.”

The surge in e-trading is increasing customer demand for more data and analytics, according to Lynn Martin, president of fixed income and data services at ICE.

“We’ve seen strong demand from our customers for both more data and analytics, as well as access to our fixed income trading protocols and platforms,” said Martin in an email. “And although the pandemic helped drive some of that activity, we think there’s still much more demand for new and innovative data sets and technologies that will provide even more transparency into the market.”

In January, electronic trading accounted for 31 percent of trading investment grade bonds in 2020, up five percent in one year, according to Greenwich Associates. MarketAxess recorded that more than $2.6tn of credit trading in 2020, an increase of 29 percent, compared it $2tn in 2019.

There has been a “fundamental” shift in how firms are trading bonds overall with many leaning towards portfolio trading, according to Martin.

ICE announced over $1.9bn in U.S-based notional activity was executed in the fourth quarter of 2020, the strongest period of activity since portfolio trading was first introduced on the platform.

“It started with spreadsheets and email but has migrated online to platforms like ours as investors realized the benefits of straight-through processing and having high-quality data and analytics to help with pricing,” said Martin.

According to Tradeweb, portfolio trading reached $146.4bn in 2020, an increase of almost 241 percent year on year. The fourth quarter of 2020 reached $57.6bn, more than $14.6bn of the combined total for 2019.

“Portfolio trading makes rebalancing easier,” says Britton. “The other benefit is the ability to trade liquid and illiquid securities in one place at one time. The idea of doing that is for some bonds it may be trickier to get prices for and sell them as a one off so it’s better to get an overall package price.”

“As the proportion of trades completed electronically increases, we also expect to see a large proportion of these transactions become automated,” said Gareth Coltman, global head of trading automation at MarketAxess.

“The pandemic has only further driven the demand for more efficient ways of trading, and we were seeing greater use of a variety of protocols. We are seeing this translated into real behavioural change as the market looks to adopt new methods.”

“There will be a continued focus on automating and streamlining workflows,” said ICE’s Martin. “APIs will help with that and will dramatically increase firms’ access to markets, which improves both transparency and broader market liquidity.”


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