Buy-side clash over bond liquidity

Heads of fixed income at buy-side firms debated whether liquidity has declined at the Fixed Income Leaders Summit.

Fixed income heads at major asset management firms in Europe are at odds on whether liquidity in bond markets had declined, with some suggesting the buy-side has become “lazy” when sourcing liquidity.

Panellists speaking at the Fixed income Leaders Summit in Amsterdam frequently disagreed over how the buy-side have sourced liquidity in bond markets.

Lee Sanders, head of fixed income trading at AXA Investment Management, told delegates he has no problem sourcing liquidity and the use of tools like the MarketAxess OpenTrading platform has made the task easier.

“People on the buy-side have become lazy about sourcing liquidity. We manage billions in fixed income assets and I have no problem sourcing liquidity. In fact, liquidity is the best I’ve ever seen it,” he said.

Sanders added due to technology providers and vendors continuing to innovate and the market moving towards all-to-all trading, liquidity has been taken to the next level in fixed income.

Mike Poole, fixed income dealing manager at Jupiter Asset Management, agreed with Sanders on the state of liquidity and told delegates the issue with sourcing liquidity is often about the cost of trading.

Conversely, Mariano Goldfishcer, global head of credit trading and syndicate at Credit Agricole, made a similar statement about the buy-side tending to be lazy when looking to trade with counterparts on a separate panel.

“Of course, there is a good amount of the buy-side that knows how to execute, but there is some laziness. We see a lot of RFQs at the moment and we track every single enquiry and how often those enquiries come in,” he said.

Jim Switzer, global head of credit trading at Alliance Bernstein, added dealer balance sheets and a shift towards passive investing have exacerbated liquidity.

“I disagree that liquidity today is the best it has ever been, it’s ok, but step back and look at the market before the financial crisis in 2008. If liquidity is fine, then why aren’t bid offer spreads higher? We have to keep talking about liquidity in bond markets,” he explained.

Bond liquidity has long-been a topic of discussion among fixed income market participants. Regulators worldwide have rejected claims, up until quite recently, that bond liquidity has deteriorated since the financial crisis in 2008.

Research this year has revealed buy-siders mostly agree bond liquidity has deteriorated, with liquidity for large ticket orders having suffered most.