“ Understanding how desks work is a huge advantage when tackling the problem of municipal bond market electronification .”
[ C L O S I N G B E L L ]
Technology will solve municipal bond market fragmentation
Fixed income is a deep and diverse asset class . From credit to government bonds , investment firms are always on the hunt for yield across the everexpanding fixed income universe .
Technology is poised to have a profound impact on the $ 4T municipal bond market . While credit market electronification has surged over the past decade , only 14 % of municipal bonds ( muni ) were traded electronically in Q4 2022 , according to recent research by Coalition Greenwich . The muni market is ripe for electronification due to its highly manual nature : data is hard to find , and liquidity sources are disparate , with many still using manual processes themselves .
Stitching together and equipping seemingly distant corners of the market can seem an insurmountable task , but the solution is surprisingly simple : deploy modern execution management systems ( EMS ).
Mark my words : EMS will drastically improve the lives of muni bond traders . Entire investing teams can look forward to more time available to focus on returns , improved workflows ,
Early adopters of modern fixed income EMSs within the muni market can gain an immediate edge by underpinning voice and electronic execution methods , writes TS Imagine ’ s chief markets officer SPENCER LEE .
and seamless coordination with compliance , operations , and other key support functions .
As we saw in equities and credit , electronification takes many forms and widespread adoption takes time . However , early adopters of modern fixed income EMSs within the muni market can gain an immediate edge by underpinning voice and electronic execution methods , uniting disparate market data and viewing liquidity through a single system . Early adopters will also save time and cut costs .
As well as creating more nimble , better-informed traders , electronification will allow investment teams to automate lower-touch trades and focus on higher-value tasks . Trade count , particularly for smaller orders , has jumped in recent years – increasing 60 % year-over-year from 2020 to the end of 2022 ,
“ Understanding how desks work is a huge advantage when tackling the problem of municipal bond market electronification .”
86 // TheTRADE // Q3 2023 according to Coalition Greenwich . We can expect this trend to gather pace as electronic trading adoption increases and the market outlook improves .
Rising rates over the past 18 months have drawn investors to munis with some market analysts pointing to continued solid returns in the longer term . Firms need to be ready to meet the demands of the market .
Understanding how desks work is a huge advantage when tackling the problem of municipal bond market electronification . Knowledge of how investment teams behave , what they need and how they interact is essential . In our case , we have taken the combined experience of traders who have lived and breathed the market to build solutions that boost the effectiveness of bond investors and shore up part of the fixed income market ripe for technological innovation .
For investment team heads , sophisticated EMS covering munis are a game changer . The market is on the cusp of modernisation – it is now up to investment firms to make the leap and expedite the transition .