By Katy Burne
Corporate bond traders' phone lines won't be ringing off the
hook in 2013.
Banks and others predict an increase in electronic fixed-income
trading next year as investors look beyond traditional phone-based
trading with dealers, according to new research released
Thursday.
Respondents from 24 dealer banks and brokers told independent
researcher Tabb Group that asset managers would increase their
electronic trading over the next year. On average, they said the
increase would be up to 10% in terms of the value of each trade
going through and up to 4% in terms of the number of orders being
ticketed, according to the Tabb report.
Separately, consulting firm Booz & Company predicted in an
outlook Thursday that the electronic trading of corporate bonds
would increase drastically in the near term.
In 2011, less than 20% of the corporate bond market traded on
electronic venues, but in two to five years that could jump to
35%-45%, led by the most liquid, investment-grade debt issues, said
Booz.
A bond exchange operated by NYSE Euronext (NYX) that currently
sees low volumes is viewed as being well positioned to win market
share in the U.S., according to the Tabb report, as is a platform
being created by Tradeweb Markets LLC.
NYSE Bonds, which began offering live electronic prices for
bonds in 2007, does not publish its trading volumes. A spokeswoman
said it sees small volumes each day, but that volumes have been
growing.
MarketAxess Holdings Inc. (MKTX) operates the largest electronic
network for corporate bond trading by institutions in the U.S.,
seeing a 14.7% share of investment-grade bond trading in November.
It, too, is readying an exchange-like platform for corporate bonds,
but the launch would depend on customer demand.
Will Rhode, director of fixed-income research at Tabb,
attributed the interest in NYSE Bonds partly to the platform not
being owned by market participants. But Mr. Rhode said that until
the major dealers support the platform more, it will struggle. The
platform offers trading in debt securities only from those
companies listed on the equities exchange.
Dealers are also supporting the new platform set for launch by
Tradeweb, which is majority owned by Thomson Reuters (TRI) but also
has 10 dealers as minority equity holders.
While 56% of respondents said NYSE Bonds would be the most
successful as a future bond-trading platform, others voted in favor
of platforms run by giant asset manager BlackRock (31%), Goldman
Sachs (31%), UBS (31%) and Deutsche Bank (6%). Tradeweb was omitted
because its platform has not yet been announced.
Multiple trading venues have sprung up in recent months hoping
to fill the void left behind by those dealers who have looked to
reduce risk in the wake of the 2008 financial crisis. Banks
reported aggregate fixed-income losses of $8 billion since the
start of 2008, according to Tabb, and their inventories of
corporate bonds are down 80% since the high in 2007.
Additionally, large or "block"-sized bond positions are being
kept on dealers' books for only a week or less, compared to six
months ago when three weeks to three months was normal, said
Tabb.
Tabb spoke to 24 dealer banks and brokers, including heads of
businesses in charge of bond sales and trading at seven of those
firms. Of the respondents, 17 were in the U.S. and the remainder in
Europe.
The Booz report was a look-ahead report to 2013, not based on a
survey.
Write to Katy Burne at katy.burne@dowjones.com
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