Buy-side trading desks boost bond budgets

Buy-side firms increased fixed income trading desk budgets in 2016, as equities trading desks budgets fell.

Budgets for fixed income trading desks increased in 2016 for technology as the industry prepares for shifts in interest rates.

A poll of 270 buy-side traders globally - carried out by Greenwich Associates - found fixed income trading desk budgets increased on average 3% year-on-year.

IT budgets increased alongside this as bond markets try to keep pace with the ‘dramatic changes’ technology is triggering in the financial industry, the research stated.

Institutions reported an average trading desk budget of $35.8 million in 2016 - for technology and expenses only - relatively flat compared to budgets in 2015.

Firms held off from making any radical changes on their trading desks in 2016 as they assessed the impact of macro-economic variables including the Trump victory in the United States, the ongoing Brexit process in Europe and long-awaited action by the US Federal Reserve, Greenwich said. 

At the same time, equities and FX trading desks saw budgets fall 1% in 2016 compared to the year prior.

The report also found that last year, buy-side firms shifted budget allocations to allow for technological additions to trading desks.   

Compensation expenses made up 70% of trading desk budgets in 2015, but that share fell to 65% in 2016, with the difference shifting to technology

Kevin Kozlowski, institutional analyst at Greenwich Associates, explained more than one-third of volume traded globally in fixed income markets is now executed electronically.

“Couple that with three-quarters of approximately 2,500 respondents in our most recent FX study reporting use of electronic trading for some of their trading volume and it should be no surprise that technology budget allocations are going to be increasing for the foreseeable future,” he said.

The number of investors trading fixed income electronically has continued to grow year-on-year, with 46% now stating they trade at least some of their volume electronically, according to another study by Greenwich Associates.

In 2011, just 18% of fixed income was traded electronically globally on a volume-weighted basis, but this surged to 37% in 2016.