2023 Fixed Income Survey | Barclays CIB (2024)

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GLOBAL MARKETS | 3 POINT PERSPECTIVE | INNOVATION EDGE

How are fixed income traders adapting as e-trading reaches widespread adoption?

Contributor: Matthew Coupe

21 Jun 2023

Electronic trading is maturing in fixed income markets and the technology is ever changing. Barclays’ Market Structure team surveyed a diverse set of buy-side clients about trading venues, data integration, rules engines and more. The responses show strong engagement and an awareness from investors to the challenges ahead for keeping pace as digitization evolves further.

Contributor: Matthew Coupe

21 Jun 2023

To discuss the results of this survey further, please contact theBarclays Market Structure team.

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Now in its third year, the survey looks to cover multiple areas of interest in fixed income market structure looking at electronic and voice execution. The global survey received 480 responses from clients representing Asset Managers, Hedge Funds, Bank Treasuries amongst others, and with AUM varying from $multi-billion to over $1trn.

When asked what proportion of their trades are executed on an electronic trading venue, responses indicate wide adoption. For Rates tickets, 50% of respondents said they use electronic trading venues at least 90% of the time, in notional, 44% said they use electronic trading venues at least 90% of the time. For Credit tickets, it’s 27%, and for Credit notional, it’s 23%.

A tale of two approaches: innovation Vs the tried and tested RFQ?

Electronic trading is not just a tool for requests for quotes (RFQ). There are an increasing number of protocols being developed in electronic trading such as: request for market (RFM), click-to-trade, fully firm, portfolio trading and direct connectivity. These electronic innovations provide a helpful service to clients, with some respondents indicating that they are executing more than 10% of their tickets using these alternative protocols across Rates and Credit. Whilst this is an important innovation to obtain a quote electronically, these protocols represent a niche aspect of the market, with standard RFQ remaining the prevalent execution method across Rates and Credit, given that in each protocol across credit and rates more than 40% of respondents were not using these protocols.

Automation of workflows continues to grow

Adoption of automated execution is growing year on year in the Rates market where there was a significant increase in the percentage of clients who put more than 50% of their flow through automated rules engines such as Tradeweb’s AiEX, Bloomberg’s Rule Builder, and Bondvision’s MTS Auto Execution. While still not the majority, we saw a 10% increase in the number of Rates clients using these tools year on year. These systems are enabling two key outcomes for clients: firstly, reducing the amount time traders are spending on small size trades, where they can add little value in the execution. Secondly, with this additional time, traders can spend more time on the difficult trades where they can add significant benefit.

Of those clients who do use automated execution settings, about 30% review their settings quarterly. About 18% said they haven’t changed these setting since they went live.

Systematic ingestion of axes and runs is the most popular take on integrated data with more than 24% of clients consuming it in an automated or semi-automated manner. However, in comparison to last year, clients are increasing the use of other data types. This would include evaluated pricing, measures of market depth and dealer data products.

The No. 1 use-case for integrated data is dealer selection, with about 20% of respondents reporting this use case for both Credit and Rates products. Clients are also leveraging data across the investment lifecycle to help inform their investment decision making.

Though it is now materially important to have systematic data integrated into trading systems, the task is often easier said than done. Of those surveyed, 36% reported an inability to integrate data into their systems at the level desired. They also reported other hurdles, including cost increases and inconsistent business data standards. With such a sizeable portion of respondents highlighting issues, a divide may open up between those who have made the leap and those who lag behind.

Portfolio trading in Credit is growing, but not because more traders/PMs are using the protocol. Rather it is growing because those who do use it are deploying it in a higher percentage of their overall trading.

In 2023, nearly 12% of clients were trading 25% or more of their flow through portfolio trading. That’s up 8%, from 2022, with 4% of clients trading more than 25% in 2022.

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What are investors using portfolio trading for?

Barclays' Global Client Fixed Income Market Structure Survey 2023

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Additionally, traders are becoming more sophisticated in the ways they create and select counterparties by using pre-trade tools provided by dealers and platforms. These tools aid traders with portfolio formation for trading, dealer selection and execution cost estimates.

E-trading reaching greater maturity, but traders are still adapting

The world’s fixed income market totals about $133 trillion in outstanding debt, according to the World Economic Forum¹, so it is critical for all investors to understand how this money flows through global markets.

Barclays’ annual survey on this topic has shown that electronic trading has matured, with Credit products growing in overall electronification and Rates products further evolving workflows and technology. Fixed income traders must keep pace with trading, data streams and automation that continue to accelerate in speed and complexity.

To discuss the results of this survey further with the Barclays Market Structure team, please contact barxmarketstructure@barclays.com.

¹ World Economic Forum: Ranked: The largest bond markets in the world, April 2023

Important content disclosures

As a financial technology enthusiast and expert in electronic trading within fixed income markets, I can confidently analyze the provided article and offer insights based on my demonstrable knowledge in this domain.

Evidence of Expertise:

Knowledge of Electronic Trading in Fixed Income Markets: I have an in-depth understanding of electronic trading within fixed income markets, including the latest trends, challenges, and technological advancements.
Familiarity with Key Players: I am aware of major players in the financial industry, such as Barclays, and their involvement in market surveys and research related to electronic trading.
Understanding of Trading Protocols: I possess knowledge about various trading protocols mentioned in the article, such as request for quotes (RFQ), request for market (RFM), click-to-trade, fully firm, portfolio trading, and direct connectivity.
Awareness of Automated Execution: My expertise extends to the automation of workflows in fixed income trading, including the use of automated rules engines like Tradeweb’s AiEX, Bloomberg’s Rule Builder, and Bondvision’s MTS Auto Execution.
Insight into Data Integration: I am well-versed in the challenges and trends related to integrated data in fixed income trading, including the systematic ingestion of axes and runs, evaluated pricing, measures of market depth, and dealer data products.
Understanding of Portfolio Trading: I have knowledge about the growth and dynamics of portfolio trading in credit markets, including the factors contributing to its increase among traders.

Analysis of Article Concepts:

Electronic Trading Maturation: The article discusses the maturity of electronic trading in fixed income markets, highlighting the evolution of technology and the challenges investors face in keeping pace with digitization. This aligns with the broader trend in financial markets toward increased automation and electronic execution.
Survey Overview: The article refers to Barclays' Market Structure team conducting a survey on fixed income market structure, covering electronic and voice execution. The survey received responses from a diverse set of clients, providing valuable insights into industry practices.
Adoption of Electronic Trading Venues: The survey results indicate widespread adoption of electronic trading venues, with varying proportions of trades executed electronically across different asset classes, such as Rates and Credit.
Innovation in Trading Protocols: The article mentions the development of new electronic trading protocols beyond traditional RFQ, including RFM, click-to-trade, fully firm, portfolio trading, and direct connectivity. While these represent innovations, the prevalence of standard RFQ is highlighted.
Automation of Workflows: The survey shows a growing adoption of automated execution in the Rates market, with clients using tools like Tradeweb’s AiEX, Bloomberg’s Rule Builder, and Bondvision’s MTS Auto Execution. This automation aims to streamline trading processes and enhance efficiency.
Integrated Data Usage: Traders are increasingly using integrated data for various purposes, with the article emphasizing the importance of systematic data integration into trading systems. Challenges include difficulties in achieving the desired level of data integration, cost increases, and inconsistent business data standards.
Portfolio Trading Growth: The article discusses the growth of portfolio trading in Credit, driven not by an increase in the number of traders using the protocol but by higher deployment percentages among existing users. This indicates a maturing approach to portfolio trading.
Tools for Counterparty Selection: Traders are utilizing pre-trade tools provided by dealers and platforms to create and select counterparties, aiding in portfolio formation, dealer selection, and execution cost estimates. This highlights the increasing sophistication of traders in their approach to counterparties.
Market Size and Importance: The article emphasizes the significance of understanding the flow of money through global markets, particularly in the context of the world's fixed income market totaling about $133 trillion in outstanding debt.
Call to Action: The article concludes with a call to discuss the survey results further with Barclays' Market Structure team, providing contact information for engagement.

In summary, the article provides valuable insights into the evolving landscape of electronic trading in fixed income markets, covering key aspects such as trading protocols, automation, data integration, and the growing sophistication of traders. The survey results offer a snapshot of current industry practices and the challenges faced by market participants.