Fixed Income to See Growth in 2012
Market participants predict ongoing volatility and equity market fatigue will drive investors toward fixed income in the year to come.
With volatility remaining constant since the mid-summer, investors will increasingly turn to trading in securities aside from equities, including fixed income, in a move to hedge risk.
“The main thing we can expect next year from the corporate bond side is that people will continue to look to use it as an alternative to the volatile equity markets,” Chris Shayne, senior market strategist for BondDesk, told Markets Media. “There is equity market fatigue. I expect that demand for corporate bonds will remain fairly strong. The credit worthiness of corporate bonds is reasonable now. Those looking at corporate bonds as an investment opportunity can do so with confidence.”
There is similar upside to be expected in the municipal bond space in the coming year.
“The interesting thing we’re seeing in municipal bonds that it appears yields are as low as they will go,” said Shayne. “Investors can invest with some confidence that there’s not too much downside risk.”
Founded in 1997, BondDesk operates the largest retail bond trading venue in the U.S. The company executes about one-third of the trading in the retail bond market. It also provides enterprise-wide fixed income trading technology, software and analytical tools to the broker-dealer community. BondDesk ATS, run through an affiliate, connects broker-dealers through a centralized marketplace by offering a diverse pool of liquidity for odd-lot fixed income securities in multiple asset classes. The ATS executes about 20,000 transactions daily, worth more than $1 billion, for a network of 2,000 broker-dealers.
BondDesk recently announced the formation of a partnership with Trade West Systems, whereby liquidity from competing fixed income trading venues can be aggregated and traded on its own platform. Prior to the partnership, BondDesk gave access to about 97% of the overall bond inventory. The company asserts that the deal with Trade West will help to shore up gaps.
Electronification of the municipal bond market also presents a large opportunity.
The success of Northbound trading showed electronic execution is way forward for the bond market.
IRS trading volumes have fragmented without an equivalence agreement.
Increased electronification has created useable and accessible real-time and historic trade data.
Members are evaluating payment-versus-payment for currencies not yet eligible for CLSSettlement.