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on their LDI exposure and to fund that , they would have to liquidate gilts into an already negative market sentiment ,” added Holland .
Retreat and retrench “ Monday was a nervous day , and everyone tried to stay close to home and not really intervene unless they were forced into the market . People were cautious , waiting for more news and anticipating that there would be some form of statement to calm markets .”
Speaking on how trading volumes were impacted by the gilt crisis , particularly the reduction in trading volumes , Holland highlighted that especially on the Tuesday , unless you were speculative or an opportunist in the market , most asset managers and market makers were staying out of the market , unless they were forced in – i . e . to fulfill client orders that needed execution or if risk parameters were being sent because of inflows .
“ Most people were trying to stay out of the market . The main reason for that was that the uncertainty meant that the market hadn ' t formed a natural base , which it normally does in any correction . The lack of information was causing some issues around where the natural base would come and therefore , the moves in the market on very small volume caused disproportionately high price movements . The relationships on the curves really struggled as well , because it was very supply and demand-led .”
Different strokes But not everyone suffered , and the reaction depended on which
side of the fence you were sitting . Tradeweb , for example , one of the biggest market makers in the space with an excess of $ 60 + billion traded on its government bond marketplace daily , experienced a record month for gilts trading . According to Nicola Danese , managing director , head of European fixed income trading at Tradeweb , September month end was ( and still is ) the financial services provider ’ s record day ever for gilts . October then became its record month , following a record month in September .
“ You talk about the ‘ gilt crisis ’. From our perspective , it wasn ' t a crisis - not from our observation point . This was a market that kept clearing on the back of high volatility and incredibly high trading activity . It was certainly costlier to trade , which is nothing unusual in a volatile environment , but it was proportionate to risk and didn ’ t hamper buy-side investors ’ ability to complete their transactions ,” argued Danese .
66 // TheTRADE // Q4 2022