The early stages of the COVID-19 crisis exposed the vulnerability of prospective fallen angels. The volume of prospective fallen angels’ debt that was downgraded in just the first few weeks of 2020 was five times larger than the volume of similar downgrades during the entire Global Financial Crisis, as shown in the chart below. 

In the March 2020 sell-off seen across capital markets, several funds in the Nordic region were forced to shutter to investor withdrawals as they were unable to get prices on their holdings of corporate bonds. Brokers were only able to make prices after a delay of several days, making it impossible for the funds to assess the value of holdings.

The cost of data needed to trade bonds in Europe has soared by 50% over five years, according to new data that highlight regulators’ concerns about competition and pricing in the market. Costs for fixed income data rose by a half between 2017 and 2021, twice as much as overall market data price rises. The increase was largely because of sellers increasing their prices, rather than demands for new kinds of data.

The European credit trading team at Citi has, according to several large asset managers, told buy-side clients the bank owns any data relating to bilateral bond trades in which it was involved. As a result, it has said its clients may not share this information even anonymously, outside of regulatory obligations, specifically targeting its use by Glimpse Markets, a firm providing buy-side data sharing.

Mid-X, our anonymous session-based matching protocol, is now live for our clients in the US! Maximize your trading opportunities through our all-to-all trading marketplace and realize cost savings by trading at the Composite+™ mid-market price. 

These new technologies allow asset managers to initiate a trade with the knowledge that there is sufficient liquidity at their expected price and ask the best-equipped dealer to work their order – based upon that dealer’s current and past performance. In turn, dealers can leverage the same AI technology to identify interest and liquidity within their own network, and efficiently connect the most probable clients to optimize a successful transaction. 

An open question, however, is why bond market data appears to have better forecasting power for real outcomes (in particular during recessions) than equity market data. 

On this episode, we speak with Larry Harris of the USC Marshall School of Business and a former Chief Economist at the U.S. Securities and Exchange Commission, where he helped push through major stock market reform known as Reg NMS, about why the corporate bond market has been so resistant to substantial change. Harris was also part of the SEC’s most recent effort to improve corporate bond trading — the Fixed Income Market Structure Advisory Committee (FIMSAC) created in 2018. He explains why it hasn’t had much success in changing the market.

“Many professionals have access to some amount of pre-trade price information in the corporate bond market,” Gensler said in a Tuesday speech. “I wonder if broadening the dissemination of that type of information might make this market more accessible, competitive and liquid.”

We recently gathered input from 16 corporate-bond liquidity providers, examining their views on liquidity, where they see opportunities for innovation and the market’s next step forward. Their key areas of planned investment—direct connectivity to clients and ways to better leverage their client network—are another sign that the market has fundamentally changed from its post-credit-crisis norm.