Jenny Xiao of BlackRock and Chris Concannon of MarketAxess discuss the trends that are reshaping credit and rates markets in the Industry Crystal Ball Keynote Thursday morning at the Fixed Income Leaders Summit in Boston.
Top trends highlighted by Jenny Xiao, global head of rates trading at BlackRock, and Chris Concannon, CEO of MarketAxess include accelerated market electronification; convergence of market structure between credit and rates; and technological innovation.
Xiao and Concannon cited Coalition Greenwich data that showed nearly 30% of bond dealer trading volume is now executed without human intervention, a milestone number that is on the rise given that two-thirds of dealers see increased automation in trading as a top technological priority in 2024.
Concannon noted that electronic trading growth in corporate bonds has been largely driven by the request for quote (RFQ) protocol, but more recently liquid credit names are seeing more activity with streaming quotes, which is historically a trading protocol for rates.
“Over time, market structure will depend on the liquidity of the instrument,” Concannon said. “More dealers are willing to put up streaming prices” for liquid corporate bonds.”
Xiao noted an “incredible” velocity of bond trading, driven by factors such as higher yields and demand for active exchange-traded funds (ETFs). The trading desk of the future needs to be built on the expectation of more market electronification, with team members proficient in artificial intelligence and other technological innovations.
Concannon said one challenge with electronification is that as more transactions move to ‘no touch’, how can traders still exploit the unique market information they possess? This will come down to an evolved trader skill set, which might include writing their own algorithms.
Xiao and Concannon agreed that while liquidity has been generally good, that is subject to change at a moment’s notice, and market participants should be prepared for an adverse event.
Traders need to not be complacent about liquidity, Xiao said, and ensure they are ready and able to use any tool in the toolbox, whether that be relationships with big banks, relationships with new liquidity providers, all-to-all trading, algos in rates trading, portfolio trading, and others. “Ensuring resilience is critical,” she said.
“I do worry about liquidity,” said Concannon, noting that the size of the Treasury market has increased significantly,and the current landscape of liquidity providers is untested in challenging liquidity conditions.
Concannon said another leg in the expansion of electronification will be block trades, which he characterized as between $3 million and $10 million. The main challenge is information leakage.
“Simple block trades are happening,” Concannon said. “In rates it’s already being done, and it’s moving into credit,” he said, adding it’s about giving traders the right tools and information.
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