Portfolio trading in fixed income has grown threefold in two years, data from Flow Traders reveal.
Speaking at the 2021 Fixed Income Leaders Summit (FILS) in London, Ramon Balje, head of fixed income at Flow Traders, said EU credit portfolio trading had reached as much as 6% of the total market volumes.
Balje told delegates, “[Fixed income portfolio trading] was at almost zero percent of the total market in 2019, while the US market was at 2%. In the last two years this has grown dramatically to account for 5 to 6% of the total market.”
Flow Traders’ data show €14bn per month is being traded through portfolio trading in Europe with the majority in investment grade credit, while the fastest growing assets are emerging markets and high yield.
Nikhil Sethi, head of EMEA Credit Trading at BlackRock, said the nascent portfolio trading market was catching its US counterpart thank to advances in technology from platform providers.
Sethi said, “Portfolio trading wasn’t known about two years ago because the technology and tools weren’t there. But trading platforms have made giant strides in 18 months to have data and analytics available to be able to price these portfolios.”
The rise of the credit exchange traded fund (ETF) has also been significant in shifting bond trading protocols.
Jasper Jansen, head of fixed income trading at Flow Traders, said there has been advances in the way ETFs can be analysed which in turn has made trading credit through these instruments more efficient.
“We have built tools to analyse baskets which tells us which bonds are good. When a buyside firm sends a basket we scan it using the latest tools, and we check liquidity scores and look at [request for quote] approvals We can tack all this very well,” Jensen said.
Alexander Brause, head of fixed Income trading and deputy head of trading at Swiss National Bank, agreed that portfolio trading using ETFs for credit has improved.
“We were not convinced about the execution quality when portfolio trading was focused on simply moving large trades. But with new participants entering the market and as platforms have ramped up their technology, this has improved,” Brause said.
Automation in the fixed income markets, particularly through portfolio trading has also improved efficiency by allowing traders to focus on alpha generating opportunities.
Guillaume Carreno, global head of electronic client connectivity, global markets division at Credit Agricole CIB, said: “The electronification of market means we can move our attention from the low value-added tasks to alpha generation.”
Conference photos courtesy of Richard Hadley.
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