How has investor sentiment and strategy in fixed income changed this year, and how does this vary region by region?
This year has already been a tale of two quarters. As we entered 2023, soaring fixed-income volumes driven by strong investor sentiment led to a record first quarter on our platform across our core products, including local currency markets after a challenging year for emerging sovereign and corporate debt. This trend quickly reversed as the impact of Silicon Valley Bank, First Republic and Credit Suisse shifted market sentiment and eroded investor conviction across developed and emerging markets. As markets begin to settle, we expect bonds to play an important role in market recovery for the remainder of the year and investors’ portfolios moving forward.
How is the changing market backdrop influencing this?
The market backdrop is very challenging, the inflation story is still very much alive, interest rates are still rising – albeit at a slower pace – and the geo-political situation is extremely volatile as we move into the looming presidential election in the US. In these conditions, many investors are looking at potential entry points, from a market or credit risk perspective. The ability to leverage high-quality data during volatile markets can unlock investment opportunities, as is using the right trading protocol for the right trade.
Which other innovations are driving changes in fixed income trading?
The use of artificial intelligence and machine learning has given us the ability to continuously invest in predictive data products such as CP+, our AI-powered bond pricing tool. These data points can help improve trading efficiencies by offering no touch, low touch and high touch workflows based on predictive and actionable data.
We have created a suite of data products to support the use of innovative technology between liquidity takers and liquidity providers. Our buy-side users are embracing automation at pace, while we also see an accelerating shift in the use of trading algos by sell-side dealers.
The focus on execution automation to drive better price outcome is truly global. Not only can we help traders be more efficient, we can also help them choose which trading protocol is better suited to their needs based on the liquidity of the bond, the probability of receiving quotes, and the likelihood of execution. The next iteration of that evolution will certainly be the ability for investors to rest block orders and adapt their execution style to multiple trading protocols over time, for example over one full trading day.