Institutional Online Bond Trading – Slowing, but Growing

August 24, 2001 ( - Online bond trading by institutional investors in the US increased this year, although at a slower rate than last year, according to a recent study.

Consulting firm Greenwich Associates found that the number of fixed income investors conducting their trades online increased by 40%, from 35% in 2000, and 20% in 1999.

Volume, on the other hand, grew noticeably. The proportion of volume being executed electronically reaching 23% up from 16% last year.

Liquid Assets

The study also revealed a growing frustration among investors over the drying up of liquidity across the bonds markets, a situation which increasing online trading could mitigate somewhat.

While most investors struggling with this say they will change either their portfolio allocations or relationships with dealers, 10% said they plan to increase their e-trading.

In some sectors, proportionate increases in online trading are even greater than for the overall market. In 2001,

  • half the investors trading US Treasuries do a portion of their volume online, compared to 42% in 2000,
  • just over a third of US Agency investors traded online, thrice the number recorded in 2000.
  • the uptake of junk bond traders almost tripled to 14%, from 4% a year earlier

Turning up the Volume

And in sectors where the percentage of online investors did not substantially increase, volumes traded by those who are online increased significantly,

  • short-term online bond trading went from 36% to 55%,
  • asset-backed electronic volume nearly doubled, from 24% to 41%, and
  • mortgage-backed e-volume more than doubled, from 12% to 26%

Emerging markets was the only area where online bond trading remained flat, with the percentage remaining at 5%, and the average volume traded even smaller.

Getting Connected

Among the 44% of fixed income investors who do not trade online, but use the Web for research or other purposes but do not trade online, 70% are considering online trading, while half of those who don?t use the Web at all, 14% of the sample, are considering trading fixed income instruments online.

Results are based on information garnered from 1,073 interviews with fixed-income investors at US institutions.

– Camilla Klein                          editors@plansponsor.comrs .