09.12.2011
By Terry Flanagan

Investors Shift to Fixed Income

The use of fixed income assets as a tool to hedge risk is on the rise as the markets remain highly volatile.

As volatility continues to permeate the marketplace, investors are increasingly looking to incorporate fixed income instruments to help manage risk.

“The trend has certainly been to move more assets into fixed income over the last 3 years,” said Rick McVey, chief executive officer of MarketAxess Holdings. “Looking at fund flow data, there has been more money flowing into bond funds and most of it has been coming out of money market funds or equity funds. So those flows have been favorrable for trading volumes in fixed income.”

New York-based MarketAxess mainly handles the trades of corporate bonds, emerging market bonds and other fixed income securities. It currently has about 900 institutional investing firms actively trading with a dealer community totaling 80.

“August was not a particularly good for bond fund flows, it was negative for the month,” said McVey. “Market share results are esp compelling considering there were no new flows.”

Despite the increase in credit spreads, resulting from the ongoing European debt issues, as well as with the fund out flows, McVey asserts that MarketAxess was able to post favorable volume statistics for the month. “With all that going on, investors were using MarketAxess more, not less, and that’s a very good sign for greater electronic trading in the market.”

For August, MarketAxess handled $47.1 billion in total volume, up 45 percent from the same time last year ($32.5 billion), and 18 percent from July ($39.9 billion). The volume consisted of $30.3 billion in U.S. high-grade volume, $2.1 billion in Eurobond volume and $14.6 billion in other volume, which is primarily high-yield emerging markets and agency debt.

As far as the remainder of the year, McVey is expecting some of the momentum from August carrying over through the coming months.

“Typically, September volumes show a significant increase from August, and from what we can tell, most dealers are expecting September to be a very big month for new issues, we are already seeing that this week,” McVey said. “We would expect September activity levels to stay very active and higher than August.”

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