FIXED INCOME

Bond participants say stress event could have dire consequences

Panellists agree the bond market has yet to be fully tested.

By Hayley McDowell hayley.mcdowell@strategic-i.com December 02, 2016 9:10 AM GMT

Fixed income participants are wary the bond market has not improved significantly since the financial crisis, as future stress events could have far-reaching consequences.

Panellists at the 2016 Global Capital Markets Conference in London discussed whether the fixed income market is in a better place now than at the time of the financial crisis in 2008.

James Wallin, senior vice president of fixed income at Alliance Bernstein, explained: “The depth of the bond market is not there anymore and we’ve seen mini-stress since the crisis and we should not feel good about what we’ve seen.”

“We need to replace that pool of liquidity that we lost and we have not solved this problem. With the absence of a safety valve or some kind of relief, a huge stress event could have dire consequences.”

Christine Kenny, managing director at Loomis Sayles Investments agreed and said: “I don’t think the bond market has been fully tested yet and I worry most about this.”

She also explained to delegates that at the height of the financial crisis, she was able to carry out more trades than in today’s market.

“Each buyer back then took around $50 million bonds from me, but I don’t have a single bank that would take that amount from me today, perhaps across five banks.” she said.

One delegate strongly agreed with Kenny’s experiences and said in 2008, “you could get anything done with your counterparties, but now it is an act of God!”

Panellists also agreed a shift to all-to-all trading and doubling efforts with data aggregation are the only plausible solution they see at the moment.

Wallin said he sees no solution, but instead a “reinvention” achieved through all-to-all trading and data aggregation.

Mark Russell, global head of credit execution services at UBS, added that the bond market isn’t quite there yet, but he strongly believes there is a solution out there.

“I think about things like blockchain and how that will open up things we haven’t even thought about yet. There will be more all-to-all trading in the market, but I’m not certain when this happen,” he said.