Graphic: Rise of the machines
The past five years have seen the rapid emergence of electronic bond trading platforms after post-crisis regulations pushed many banks out of the secondary corporate bond market. ETPs have created creating marketplaces that aim to promote access, liquidity and price discovery, but so-so market conditions remain.
Growth of providers: The growing relationship between technology and finance coupled with increasing supply and demand led to rapid growth in bond ETPs. The resulting competition drove innovations in price discovery and execution.
No more middle man: ETPs' objective is not to fill the void in dealers, but to create a venue to connect participants. The risk of holding securities is shifted to the seller and market liquidity is maintained through the greater accessibility ETPs offer.
Changing market: Cheap debt has flooded the markets with new issues, attracting investors to primary markets. Investors have also been avoiding liquidity concerns altogether and holding debt to maturity. Volume has ticked higher, but has been focused on more liquid, bigger-name issues.
Buy & hold: The MarketAxess Bid-Ask Spread Index has declined into 2016 but is masking the overall illiquidity of the markets. Investors are opting not to sell rather than take added losses on. ETPs have put buyers and sellers in an environment where they set prices, leaving it up to the counterparty to accept.
*Estimated. Sources: Securities Industry and Financial Markets Association; MarketAxess; Trade Reporting and Compliance Engine; Greenwich Associates
Compiled and designed by Charles McGrath and Gregg A. Runburg
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