Predictive analytics tools are set to become crucial in the fixed income market as regulatory pressure on the buy-side increases, according to research from consultancy Celent.
According to its latest report on analytics in fixed income, Celent claims that a drive for more pre- and post-trade transparency in the fixed income trading will require traders to use more sophisticated data sets and tools in order to make their decisions.
At present, data sets that already exist in the fixed income market are widely underused, according to the report, but could bring considerable liquidity to the markets if properly utilised.
“An example of an underleveraged data set is the client inquiry data that reside at fixed income dealers. Many fixed income inquiries, when not matched immediately by a salesperson, are either not logged or are logged into a customer relationship management solution and go nowhere,” the report said.
However, emerging forms of data analytics, which are becoming popular in the US market, will enable traders to choose how much information they wish to share and who with, expanding the potential chances of having suitable matches occurring.
But Celent believes the sell-side has further to go and will in future need to develop predictive analytics software to be able to determine in advance which positions a client wishes to trade and when.
Data analytics however, can be complex to execute correctly and requires significant time, capital and expertise to implement.
As a result of the more complex data demands likely to be put upon the industry, financial institutions will need to rely on third party software vendors and platforms to support their clients. Furthermore, Celent expects several evolutions of the data analytics platforms to hit the fixed income market in the coming years as the software is refined to provide an accurate prediction of how the market will develop.