Looking at the numbers from the major trading platforms in May, volumes appear to be recovering which will be positive for dealers, who saw investor uncertainty paralyse trading in parts of Q1.
Multi asset market operator Tradeweb saw success in rates – cash and derivatives – and corporate bonds, along with repo markets, but also had falls in the municipal bond market and with credit swaps volumes cut in half. The firm said US government bond average daily volume (ADV) was up 6.1% YoY to US$144.3 billion (bn).
European government bond ADV was up 16.5% to US$41.6bn. Trading in US government bonds was supported by strong client activity in institutional and retail markets. Wholesale volumes reportedly reflected continued client adoption of Tradeweb protocols, as overall industry volumes declined. European government bond volumes were supported by ongoing hedge fund activity amid volatile markets as well as ongoing strong interest in UK Gilts.
Total rates derivatives ADV was up 23.9% to US$467.3bn, with higher volume in swaps/swaptions ≥ 1-year driven in part by continued focus on global central bank policy and inflation expectations, and strong volumes reflecting higher compression activity.
Fully electronic US credit ADV was up 9.5% YoY to US$4.5bn and European credit ADV was up 10.5% to US$1.9bn, with North American trading responding to a reported continued client adoption across Tradeweb protocols, including sessions-based trading and Tradeweb AllTrade; the firm notes a record ADV in fully electronic US High Grade credit all-to-all trading, while industry-wide credit ADV increased 3.3% YoY based on TRACE.
Credit derivatives ADV was down 51.1% YoY to US$8.3bn with broader industry SEF volumes reportedly declining 43.4% YoY. Municipal bond ADV fell 22.5% YoY to US$321 million (mm), while the wider municipal bond market declined by 26.7% YoY, the firm reported.
Repurchase agreement (repo) ADV was up 11.9% YoY to US$470.2bn “despite significant volatility in money markets and sustained elevated usage of the Federal Reserve’s reverse repo facility” the firm said.
Retail money markets activity remained strong as interest rates remained elevated By contrast, fixed income market operator MarketAxess saw credit volumes rise 1% in total, with US investment-grade ADV of US$5.8 billion up 2.1%.
The new issue calendar snapped back strongly in May to US$155 billion, up approximately 131% from April 2023 levels. US high-yield ADV of US$1.5 billion was down 10% as low credit spread volatility reportedly reduced trading activity in some client segments and leading to overall US high-yield market ADV down 14.5%, based on TRACE reports.
MarketAxess estimated 34% of total credit trading volume was executed on its all-to-all Open Trading platform providing clients with an estimated price improvement via Open Trading of approximately US$61 million. Emerging markets trading volume fall 4.8% compared to a decrease of 6.8% in emerging markets estimated market trading volume. However, there was a 27.8% increase in Eurobonds ADV to US$1.8 billion and municipal bond ADV was US$403 million, up 3.4%.
Chris Concannon, CEO of MarketAxess, said, “We registered our best single day of credit trading volume ever in May and delivered solid estimated year-over-year market share gains across US high-yield, emerging markets, Eurobonds and municipal bonds.
Additionally, estimated market share in US investment grade, emerging markets and Eurobonds are showing sequential improvement versus first quarter 2023 levels. Credit spread volatility has remained fairly subdued since the initial March market dislocation, which has reduced trading activity by select client segments in US high yield.
The strong rebound in the new issuance calendar in May is a positive for the macro backdrop and the passage of the debt ceiling bill reduces risk and uncertainty in the outlook for fixed income.” Derivative and government bond giant, CME Group, saw 13.9 million ADV in interest rate futures contracts in May, up 20% year on year. Within that, SOFR futures ADV increased 126% to 3.4 million contracts and SOFR options ADV increased 935% to 1.8 million contracts.
On its Brokertec Treasuries platform it saw a 20% fall in ADV for May, hitting US$104.6 billion. US repo grew 8% to US$292 billion and European repo was up 1% to US$346 billion ADV. Spot FX fell 17% to US$53.4 billion on EBS Spot platform while CME saw FX derivatives contract ADV fall 6% YoY to 825,000 contracts.
“BrokerTec’s U.S. Treasuries ADV was US$105bn in May, up 14% from April despite CVOL increasing less than 1% over the same period to hold at elevated levels,” said John Edwards, global head of BrokerTec, at CME Group. “Bond markets remained volatile on expectations of future FOMC decision and trepidation surrounding the debt ceiling with the yield on 2Y note ranging 70bps throughout the month.” Looking at European repo markets he said, “May’s focus was again on the central banks, their monetary policy meetings and the continued fight to bring down inflation.
The ECB raised their deposit rate on 4 May by 25bp to 3.25%, the Bank of England followed on 11 May, raising their base rate 25bp to 4.50%. Despite market uncertainty over potential future rate increases, volumes across EU Repo remained robust throughout May with Notional ADV €346 bn.” SIX Group saw considerable growth in bond market volumes during May, with SIX Swiss Exchange reporting a turnover volume of CHF15.45 billion, a 9.4% increase over the same month last year, and BME, the Spanish exchange which is part of the group, seeing volume of CHF17.36 billion, a considerable 41.8% rise year on year.
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