Sovereign debt ratings will feature as part of Deutsche Börse’s algo news feed AlphaFlash, with other credit ratings set to follow, improving automated reaction times to ratings-related market shifts.
The signal will allow algos to automatically adjust to changes in changes to credit ratings and sovereign outlooks, which the buy-side will find most useful for different types of bond trades.
Fitch Ratings will provide the data for the new feed, which has been back-tested since August, to bolster the AlphaFlash product, which focuses on market moving events.
The AlphaFlash Fitch Ratings feed was developed to allow algorithmic trading strategies to anticipate the market impact of events, such as recent downgrades in national credit ratings across Europe, and Mark Goodman, head of quantitative electronic services at Société Générale, believes traders may start to use such tools in the future.
“I think its an interesting tool, we look at signals from other asset classes where appropriate and the downgrading of sovereign debt ratings has an impact on the market, but we’ve seen that sovereign debt trading is very different from equities.
“As these asset classes trade more on exchange, which appears to be the direction they’re going in, we may begin to look at these types of signals,” Goodman said.
“The euro debt crisis has brought credit worthiness to the forefront of everyone’s attention. By adding Fitch ratings data, we are enabling AlphaFlash clients to instantly react to rating change, which can have a huge market impact,” said Georg Gross, head of front office data and anaylitics at Deutsche Borse.
“For example, they can feed our data into their risk management tools and automatically unwind positions that may be exposed when an outlook or a rating deteriorates,” Gross said.
Other types of credit ratings will be added over the next few months, including supranationals, corporates, financial institutions and structured finance.
The euro debt crisis has continued since late 2009, as countries including Ireland, Spain, Italy and Greece have struggled to deal with rising levels of government debt, which has lead to ratings downgrades of some European states.
Earlier this year, France and Austria lost their AAA credit ratings, leaving Germany as the only major economy in the eurozone with a top-tier rating.