Fixed Income Faces Liquidity Crunch

Terry Flanagan

Fixed income markets are facing a liquidity squeeze as banks draw down inventories, building a solid business case for electronic platforms with real-time pricing capabilities.

“The sell side is exhibiting much less appetite for risk, and the consequence is that the buy side is increasingly concerned about the secondary market,” said Mark Hepsworth, president of pricing and reference data at Interactive Data Corp.

Interactive Data, a provider of independent, end-of-day fixed income evaluations is in the process of expanding its real-time fixed-income pricing services.

The company provides real-time fixed income pricing to global ETF sponsors for use in calculating intraday indicative values (or iNAVs), updated every 15 seconds.

“We are able to leverage the significant investment we have made in technology to extend our real-time fixed income pricing services,” said Hepsworth. “The fixed income markets are changing, and we see a growing opportunity to provide independent real-time evaluated fixed income pricing to the front office to support pre-trade transparency and investment analysis. We also see benefits for our clients’ post-trade operations, as they look to adopt more intraday processes to get ahead of the pricing window.”

The group which Hepsworth heads includes Interactive Data’s evaluated pricing, listed markets pricing, reference data, and fixed income analytics offerings.

Hepsworth noted that “the new paradigm in fixed income will see a proliferation of electronic communications networks.”

Earlier this year, BlackRock’s Aladdin Trading Network (ATN) and MarketAxess formed an alliance to help reduce liquidity fragmentation and improve pricing across credit markets.

Under the arrangement, MarketAxess will run electronic trading and broker dealer operations, which will be connected to BlackRock’s enterprise investment system, Aladdin, which hosts $14 trillion in BlackRock and Aladdin client assets.

BlackRock will provide buy side leadership, input on strategic direction, and innovations in trade execution capabilities for clients.

The fixed income and illiquid markets have historically been plagued with issues of transparency and information asymmetry.

DealVector has launched what is calls the first secure electronic communication network to allow fixed income and illiquid asset market players to know “who’s in their deal,” improving the efficiency of these markets by facilitating communication.

Market participants invested in CDOs, CLOs, fixed income and other alternative investments have historically been forced to operate in an opaque, fragmented market, with limited insight into counterparties, transaction volumes and inventory.
This lack of transparency makes it almost impossible to track down the right players in deals, and means many claims or restructurings are never brought to a vote because too few holders are aware it is happening.

“Investors in the alternative investment space have long searched for a solution that provides a secure method to pinpoint other holders in a specific deal without having to give away their position or personal information,” said David Delo, chairman at Southport Asset Management, in a statement. “DealVector has addressed that issue by creating the first social networking platform that preserves privacy while fostering communication between investors in the structured credit and fixed income communities.”

Interactive Data plans to add real-time pricing to Vantage, its fixed income transparency display application. The addition of real-time evaluated pricing to end of day Evaluation Services offerings will provide clients with greater insight during the trading day.

Interactive Data offers intra-day corporate actions and reference data through Apex, its delivery platform for pricing and reference data. “The expansion of our evaluated pricing capabilities to real-time is the next step as we continue to evolve our products from end of day to intraday and real-time delivery that supports pre- as well as post-trade activity,” Hepsworth said.

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