Major platforms show stable leadership in corporate bond trading
Some notable changes in results this year also reflect a change in demographics from respondents. This year saw a notably larger response from firms headquartered in the US (42% up from 28%), and the proportion of respondents running hedge fund strategies was far higher (44% up from 11%), all of which make year-on-year comparison more challenging.
Pre-trade data
Bloomberg is dominating the pre-trade data usage currently with 91% of respondents using its tools. Tradeweb has moved ahead of MarketAxess in this space to take second place, with Neptune and proprietary sources making up the other top five data sources (see Fig 1).
Although the pattern remains the same as last year, the numbers on these results differ considerably. The balance between providers was historically more even. All pre-trade data providers, barring Bloomberg, saw lower reported use this year, and there may be a demographic cause.
Notably against the historical figures nearly half of firms now have a proprietary data source for pre-trade information and over a third are streaming prices.
The pipeline of interest in new data sources is led by MarketAxess, which offers a range of data and analytics tools, followed by buy-side data sharing service, Glimpse Markets, and Neptune which streams standardised axes from dealers supporting a more standardised, and electronic method of trading. Both BondCliQ and proprietary sources have a strong showing amongst potential users (see Fig 2).
Trading interface / GUIs
Respondents rate MarketAxess as the leading interface for engaging with corporate bond trading, overtaking perennial leader Bloomberg IB/chat for the first time. It is closely followed by Bloomberg chat and Tradeweb’s GUI (see Fig 3). Bloomberg’s execution and order management systems (E/OMSs) are the fourth most commonly used, meaning Bloomberg has two of the top five most-used trading interfaces for credit, despite losing the top spot. Liquidnet in fifth place is proving itself against stiff competition with more than a third of buy-side trading desks using the platform’s interface.
Amongst dedicated E/OMS providers, Charles River is in second place after Bloomberg, with 31% of respondents using its system, and over half describing themselves as ‘major users’ suggesting it is an invaluable resource for users.
At 19% use amongst respondents, Trumid continues to show positive growth, following its expanding set of trading protocols. BlackRock Aladdin, with 13% of users and three quarters of them ‘major users also shows that a platform with the right levels of functionality and connectivity can be a very engaging proposition.
Amongst new engagement with trading interfaces, LedgerEdge stood out with a double-figure pipeline of potential new business. Liquidnet, MarketAxess and Dealer streamed prices are also expected to see considerable engagement relative to other interfaces (see Fig 4).
The leading platform for management of bond issuance is Bloomberg IB/Messaging, an unstructured tool that has continued to be favoured even as more structured electronic tools have developed (see Fig 5). Of these DirectBooks has overtaken rivals and now has pole position of the more structured electronic tools with 34% of users amongst buy-side desks and another 25% planning to use it (see Fig 6).
InvestorAccess, formerly Ipreo, has 26% of users amongst the buy side, with about half that categorising themselves as ‘major users’ and another 6% planning to use the platform suggesting its competition with DirectBooks will continue to play out across the rest of 2023.
Although Liquidnet’s primary market offering has a 6% user level so far, it also has 19% of desks planning to use it which is a strong potential pipeline for growth.
Secondary markets
Corporate bond trading venues are neck-and-neck in popularity terms, with just ten percentage points separating the top three. Bloomberg is most used with half of users rating themselves ‘major users, four percentage points ahead of MarketAxess which has a majority of users considering themselves major users (see Fig 7). It in turn is six percentage points ahead of Tradeweb, which is heavily relied upon by over half of its users.
Making up the top five is UBS Bond Port, the most successful dealer-owned trading venue in corporate bond markets, which is used by 31% of respondents. Of the China-focused BondConnect platforms, Tradeweb has the strongest usage with 22% of respondents, while MarketAxess and Bloomberg are each used by 6% of desks.
In the US market Trumid is strong with 13% of respondents, cementing growth it made over the past couple of years.
Appetite for engaging with new trading venues is strongest for Liquidnet, which at 13% is the most sought after platform to onboard; only dealer-streamed prices are as sought after (see Fig 8).
Analysis of trading behaviour on these venues shows a reduction in the favouring of request-for-quote execution, and in support of the new trading protocols which are being developed. The top three venues have all seen proportion of trading done via RFQ reduced by seven percentage points in favour of other approaches (see Fig 9).
MarketAxess has seen the greatest proportional change with significant increases in the proportion of trading conducted via automated or algorithmic channels, relative to other ways of trading, and a double digit drop in the proportion of total trading conducted via RFQ
Bloomberg has seen increased use of trading – both manual and automated – against streamed prices with a corresponding fall in the use of RFQ.
Tradeweb’s expansion has been in portfolio trading – which it has championed in the market – along with greater all-to-all support.
When evaluating the effectiveness of all tools – data, GUIs and venues – the most effective at finding liquidity are MarketAxess and Tradeweb in joint lead (see Fig 10). Bloomberg’s data, IB/Messaging and trading venue are then ranked as the next most effective representing second to fourth place in the ranking. Neptune is the final tool in the top five as the next most effective tool for finding liquidity.
Broken down by category, we can also see that in the top five venues are Liquidnet and UBS BondPort, while effectiveness in pre-trade data also sits with Lucera LumeALFA and streamed dealer data. Within interfaces, Bloomberg holds court but with Charles River and BlackRock Aladdin very engaged (see Fig 11).
The potential for any one group to affect liquidity is weighted towards buy-side influence, which has annually been the norm, but we see non-traditional liquidity providers ranked as effectively as dealers, indicating the strength that alternative market makers now have in liquidity support (see Fig 12). Despite increased regulatory interest in market structure across fixed income and equity markets globally, regulators are not seen as a major influence on the liquidity of corporate bond markets.
Demographics
Respondents this year have been well-balanced between European and US headquartered firms, with few Asia-Pacific firms compared to previous years. We also saw a four times the level of hedge fund participation this year compared with 2022 (see Fig 13, Fig 14 & Fig 15).
