Fixed income
Rising tides
and shining lights
Elliott Holley, Head of Global Buy-side Research
In the world of fixed income, one of the more interesting
observations of recent months has been the inflow into fixed
income funds in July, August and September, following on
from the UK referendum result in favour of Brexit in June. Much
of this activity has been driven by
investors switching from equities
into fixed income, as they seek
safety in uncertain times. The
UK government has still not
triggered Article 50 of the EU’s
Lisbon treaty, which governs exit
from the EU; until it does so, the
full impact of Brexit will remain
unclear.
On a more general level, fixed
income information leakage
continues to be a concern
for the global buy side. At the
more advanced end of the
technology spectrum, some
market
participants
have
suggested that blockchain, the
technology brought to public
awareness by Bitcoin but now often used by other firms for a
range of purposes, could be used for repo of bonds, providing
a surety of settlement that is not currently available.
However, one of the main issues may be transparency. As
one participant pointed out in our recent Asia Buy-side Forum
debate, given the opacity of the pricing in government bond
markets, any pricing no matter how indicative is a starting
point for discussion. Meanwhile in terms of global liquidity, one
possible improvement could be for the buy side to take on
the role of price makers rather than price takers; however, it is
unclear as yet to what extent this is feasible in practice. Senior
buy-side traders have indicated that there is no prospect of
their taking on the role of a market maker in the traditional
sense; however, there is some potential for trading on buyside to buy-side platforms that would enable the buy side to
connect liquidity directly.
22
www.buysideintel.com
October 2016