Sweeping changes have been a driving force behind significant change in the US fixed income markets, from altered workflows and new technology, to entirely new streams of transparent market data made available to participants, says TABB Group in “U.S. Fixed Income Market: Industry Trends & Drivers 2018 Mid-Year Update,” fifth in a series tracking a growing list of critical factors impacting the OTC fixed income markets in a post-financial crisis world.
However, as Colby Jenkins, TABB Group fixed income research analyst who wrote the report points out, 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 have continued their place as perennial issues facing US fixed-income market participants.
In covering the first half of 2018, Jenkins looked at past market activity and examined trends developing across the fixed-income ecosystem, illustrating the changes underway in terms of the structural components of the market and idiosyncrasies in the rates, credit and swaps markets to gain a better understanding of what may well await trading for the remainder of 2018 and beyond.
Here is a sampling of the report’s 19 highly-detailed exhibits:
- Total US bond notional outstanding has grown 34% since 2008, now nearly $42 trillion.
- $7.2 trillion in notional volume has traded monthly in plain vanilla interest rate swaps (IRS) on average in 2018 YTD.
- Average monthly volume traded On-SEF for plain vanilla IRS in 2018 has grown 17% compared to a trailing 12 month average.
- Since 2009, bid/ask spreads for US corporate bonds have continued to drop; spreads are narrow, but mask the hidden liquidity premium of riskless principal transactions.
- There’s currently $90 billion and $200 billion in US corporate bond and US Treasury (UST) balance-sheet capacity as top 10 dealers have reduced capacity by 25% and 53% respectively.
- With e-trading in US corporate bonds growing significantly in recent years, an estimated 24% in notional volume was executed through electronic platforms in 2018 YTD.
The 16-page report with 19 charts is available now for download by TABB fixed income clients and pre-qualified media at https://research.tabbgroup.com/search/grid. To purchase the report, go to the Executive Summary attabbgroup.com or write to info@tabbgroup.com.
