The Great Credit Market Makeover

U.S. corporate bond markets demand more flexibility in accessing liquidity.

The U.S. corporate bond marketplace has always relied on long-standing counterparty relationships to help market participants find the other side of their trades. More recently, those relationships have benefitted from a network effect as traders embrace electronic trading platforms, seeking new levels of transparency and efficiency in the way they trade credit.

Unlike the past 20 years, which were defined by slow adoption of electronic trading, the current credit landscape is undergoing a dramatic makeover due to new trading technology and significant shifts in market structure.

Growing the liquidity pool

One of the most meaningful changes in the credit market has been the introduction of all-to-all (A2A) trading. With a large amount of U.S. corporate bond inventory being held by buy-side participants, anonymous A2A trading has helped widen the pool of price makers to include the institutional investor community.

One driver of this change is Tradeweb, a leader in trading technology, and builder and operator of many of the world's most efficient fixed income marketplaces. Tradeweb introduced its all-to-all trading functionality (Blast A2A) in May 2017 as part of a comprehensive suite of flexible trading protocols for executing corporate bond trades. The differentiator? A diverse liquidity pool made up of institutional dealers, buy-side participants, and retail providers through Tradeweb Direct. Connectivity with the Tradeweb Direct liquidity pool offers access to over 130 regional dealers, which facilitates one of every seven U.S. corporate bond trades reported to TRACE - and now accounts for nearly 30 percent of completed anonymous trades from BlastA2A on the institutional platform.

"Traders are getting access to high quality liquidity through a mechanism that provides efficiencies for all trade sizes in ways traders couldn't imagine just a few years ago," says Chris Bruner, Head of U.S. Credit at Tradeweb

Today's traders can combine access to this unmatched liquidity pool with a multitude of tools designed for a more efficient workflow on Tradeweb.

Flexible execution remains essential

With new means of accessing a full spectrum of liquidity providers, traders are also focusing more on how they interact with the market to get best execution for the business they need to get done. A2A trading can play a critical role in this way for some trades, but it also coexists and works alongside a variety of execution tools that help traders get their job done - such as pre-trade data aggregation to auto treasury spotting.

"For us the tip of the spear is connecting the right data to execution in a really efficient way, but still providing traders with choices," says Bruner. "Our aim is to help inform decision making in the marketplace, whether in terms of the actual security, in liquidity, in terms of the way in which you want to execute, what kind of protocol you want to use. We've built a set of execution protocols that not only integrate data, but also give clients a choice about how they want to execute, and helps them identify the right choice quickly."

Networks yield data and transparency

What was once an opaque market for U.S. investment grade credit has rapidly changed, with traders using electronic marketplaces to access a larger network of qualified market participants, which in turn yields more and better data, transparency, and reduced risk.

The increased use of this technology has also revealed the potential for greater end-to-end workflow efficiencies that can save traders significant time and reduce risk even further. With that goal in mind, solutions to enable a fully electronic workflow that minimizes operational inefficiencies are top of mind for innovators in the credit space these days.

There's so much data available to traders today that it's easy to become inundated, only to discover high-quality information, when it's too late to use. For example, those on the buy-side are often flooded with thousands of runs to parse from e-mail messages, sifting through all of it in order to find some useful information about a given security. 

"It can be hard to know what the pre-trade picture looks like in a fairly nontransparent marketplace," says Bruner.

Now imagine a different scenario: Instead of spending precious time trying to filter the most valuable information from that which is less so, you get the information you care about most pushed to you the moment it's available. That's what happens in the pre-trade phase on Tradeweb's electronic platform.

"If you've identified 100 bonds you care most about, that's the information you're going to have delivered to you immediately so you can act more quickly and easily," says Bruner. "Innovation and automation allows us to differentiate high quality information across dealer liquidity and A2A inquiry to highlight the most important opportunities."

The corporate bond marketplace has clearly begun a significant makeover as market participants are accessing a broader network of liquidity providers. Paired with a complete range of integrated trading solutions at their disposal, the credit landscape is poised to continue its move towards more transparent and efficient electronic trading.

Click here to view the article on InstitutionalInvestor.com.

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