Buy-side increasingly taking on price-maker role in fixed income

Speakers from T. Rowe Price and PIMCO told FILS US delegates that as the market structure evolves the buy-side continue to act as price makers.

The buy-side is moving further towards a price maker role within fixed income markets as their ability to offer liquidity grows, according to speakers at this year’s Fixed Income Leaders Summit US.

A panel of buy- and sell-side speakers addressed the ways in which firms must now approach a shifting market structure and the provision of liquidity, and detailed how buy-side firms have taken on a greater role as price makers as part of the evolution of the fixed income markets.

Sonali Pier, executive vice president at PIMCO, explained that the distinction between a price maker and market maker is important to keep in mind, and that the firm’s relationship with its dealers was undergoing an evolution.

“It’s not about some of the traditional measures that have evolved, especially in the high-yield market, years ago and are very prevalent; it’s now more about first look and making sure that we are in a position where our portfolios are set up to be the liquidity provider,” Pier said.

“If you look back at the fourth quarter of 2018, one of the ways we were able to take advantage of the market was really being in that liquidity provider seat, whether that was in bank loans due to the liquidity crunch there or working with individual issuers to see if they needed to come to market where we could do a private financing directly due to the size of our balance sheet.”

Marc Wyatt, global head of trading at T. Rowe Price, agreed that the distinction between price and market maker was an important one to understand what was happening to the role of the buy-side.

“Our traders are linked inextricably linked with the investment process; we know where the analyst needs care…so we can engage the marketplace and let them know, at any level, where they stand and where we want to participate. That is most effective when you get dislocations in the marketplace, where risk is being recycled at a rapid pace we are able to step in,” said Wyatt.

Conference delegates were also convinced of the evolving role of the buy-side, with 80% saying in an interactive poll that the buy-side was increasingly taking on the price maker role.