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Sweeping changes have driven significant change in today’s US fixed income markets, says TABB Group research analyst Colby Jenkins in “U.S. Fixed Income Market: Industry Trends & Drivers 2018 Year-End Update.”
Workflows have been altered, new technology developed and entirely new streams of transparent market data made available to participants, says Jenkins. However, he explains, “continued regulatory reform in the US and Europe, changing central bank monetary policies, consolidation of assets under management, the accelerated proliferation of electronic trading, reduction in dealer balance sheet capacity, and declining bid/ask spreads coupled with increased liquidity premiums are perennial issues for the US fixed income market.”
In this sixth in a series of reports tracking a growing list of critical factors impacting the OTC fixed income markets in a post-financial crisis world, TABB Group continues to examine the past and trends developing throughout the fixed-income ecosystem, illustrating the changes underway in terms of the structural components of the market. They also dive into some of the idiosyncrasies present in the rates, credit, and swaps markets to gain a better understanding of what might await market participants looking to the future.
A sampling of the report’s heavily-detailed charts includes:
· Total US Bond Notional Outstanding grew by 35% since 2008, now nearly $42 trillion.
· Roughly $6 trillion in notional volume traded monthly on SEFs within the US for Interest Rate Derivatives (excluding FRAs) on average in 2018 YTD.
· The average monthly volume traded On-SEF for IRD has grown 69% since 2016.
· An estimated 23-25% in US corporate bonds notional volume was executed through electronic platforms in 2018 YTD..
· 95% of iTraxx notional volume was executed On SEF venues in 2018 YTD, up from 76% in 2017.
· An average of 97% of CDX notional volume was executed On SEF for 2018 YTD on a level with previous years.
Looking to 2019, says Jenkins, the US Fixed Income markets will be forced to confront a confluence of new realities both positive and negative that have unfolded in the years since the financial crisis. Recently, major indicators such as a plummeting 2 & 10-year Treasury note spread have gained headlines as yields invert between shorter-term bonds. Federal Reserve data reveals that a 2 & 10 inversion has predated every major recession since the mid-fifties. “This metric underscores the importance of understanding the story behind the data.”
This 17-page report with 29 exhibits is available for immediate download by TABB fixed-income clients and pre-qualified media. For more information or to purchase the report, write to info@tabbgroup.com.
