Tradeweb: 2018 highlights of fixed income market electronification

The growing quantity of data that the street could see on screens defined fixed income markets in 2018. Interest rates – and yields – flickered up, prices scuttled down, international and local politics pushed spreads out, and electronic quotes lit up in existing asset classes and new markets.

On Tradeweb, this translated to record-breaking volumes of over $125 trillion (through November) executed, and the company has outlined some of the more indicative stories of the year in its annual 2018 Year in Review.

Billy Hult, Tradeweb’s president, said in the report: “Automated execution allowed investors to execute a greater share of trades in government bonds when markets were fast, and source greater volume in credit when prices were slow. Around the world, policy changes drove even more volume to desktops; MiFID II led to increased volumes of derivatives activity on European MTFs, and a liberalization of rules on foreign ownership of bonds in China prompted more than$160 billion of electronic trading.”

Automated Trading Goes Mainstream: Year to date in 2018, 15.7% of all institutional mortgage and government bond, credit, and ETF tickets on Tradeweb was executed using its Automated Intelligent Execution (AiEX) technology, five times the amount of automated trading on the platform in 2014.

Derivatives Volumes Surge Following MiFID II: As new trading mandates under MiFID II governing European derivatives went into effect at the start of 2018, activity on multilateral trading facilities (MTFs) ramped up quickly, roughly doubling in each of the first three quarters of 2018.

Negative Interest Rates, The End of An Era: This year saw a normalization of monetary policy among many of the major central banks, with several of those institutions slackening off asset purchasing programs that began in response to the financial crisis, and eyeing interest rate rises. This corresponded with multi-year high yields in benchmark 10-year bonds from the U.S., Germany, Japan, and the UK. The U.S. Treasury 10-year led the pack, reaching a seven-year high of 3.23% in November 2018.

Colm Murtagh, managing director and head of US Institutional Rates at Tradeweb said in the report that rising rates and fast moving markets are driving record volumes in fixed income trading globally, prompting a change in the way customers are trading. As an example, he identified a growing proportion of Tradeweb market share is executed through automated protocols like AiEX.

China’s Bond Market Gets Ready for its Close-Up: China made significant moves to open up its markets to foreign investors in 2018. By August, China had eased or completely removed foreign ownership limits on a number of its key industries, including finance, mining, shipbuilding and aircraft manufacturing, culminating in, amongst other things, a new revolution in overseas trading in China’s bond market. By the end of November this year, more than $160 billion had been traded on China’s Bond Connect platform via Tradeweb, which was the first offshore trading venue to connect to the platform.

Read the full review

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