Although the European fixed-income market is thought to be considerably smaller and more fragmented than the US market, according to George Bollenbacher, TABB Group’s head of fixed income research and author of new research, “The Evolution of the EU Bond Markets,” it is undergoing at least as much change as that of the US, and in some areas more.
Bollenbacher decided to take a hard look at this market – to see where it’s been, where it’s gotten to and where it’s headed. Utilizing an evolutionary approach to the markets, he added available data, and from there drew a series of conclusions about data quality, SI trading vs. electronic trading, the end of monetary accommodation, the demise (or not) of LIBOR, and the unknown impact of ETFs.
In order to determine how these bond markets are evolving, the first requirement is reliable data, which turns out to be something of a problem in the EU. In national markets, like the US, Canada or other non-EU countries, the compilation and availability of issuance and trading statistics is usually handled by the national securities regulator or their designee. In Europe, however, the data is supposed to be compiled by each national regulator, or their designated trade repository, and then fed to ESMA.
Given that we have no reliable secondary market data for EU corporates, it was difficult to ascertain how the market has evolved. According to Bollenbacher, the first place to look was the International Capital Markets Association (ICMA) report on MiFID II/R and the bond markets: the first year, published in December 2018. One question ICMA asked in the survey contained in the report was about liquidity in the secondary market post-MiFID II/R. The response they got overwhelmingly indicated no change.
A third concern he had and the biggest factor in thinking about the immediate future for the bond markets is the possibility, or probability, of Brexit. But Brexit aside and looking ahead, Bollenbacher says “there are other considerations about the future of the European bond market that aren’t dependent on the ifs and whens of Brexit: data quality; SI trading vs. electronic; the end of monetary accommodation; the demise (or not) of LIBOR; and the unknown impact of ETFs.
“All in all, it promises to be an exciting few years in the European bond markets,” he says. “Despite all that has been going on, this may actually be the calm before the storm.”
The 22-page report with 15 exhibits is available for download by TABB fixed income and corporate bond clients and pre-qualified media. For more information or to purchase the report, write to info@tabbgroup.com.
