October 2024
Fixed Income Monthly Report
Chris Edmonds
As small bond trade volumes grow, so does the need for precise pricing
What drives the bond market? Where institutions once dominated the asset class, the rise of retail investors, new products, and electronic trading is causing a paradigm shift in market structure. This shift has seen a dramatic jump in small trade volumes.
Traditionally, the pricing of small and mid-sized trades was neither prioritized nor scrutinized. Now, their expanded role in bond markets has underscored a need for accurate pricing. Even whale trades which grab headlines can be an amalgamation of individual, or separately managed accounts that are grouped for ease of execution. The adoption of electronic trading is also focused on the small end of the market - viewed as a relatively low-risk way to transact systematically.
This means the fixed income community is more sensitive to any mispricing of small trades, and it carries greater consequence in terms of accurate risk transfer. Precise pricing is fundamental to market confidence, staying compliant, and reducing tail risk that a given trade is wildly mispriced. Fortunately, TRACE and MSRB data allows the industry to derive quality pricing for the liquid part of the U.S. corporate and municipal bond markets.
At ICE, our proprietary technology and valuation techniques has allowed us to offer Size-Adjusted Pricing (SAP) for bond trades since 2016, as part of our trading analytics suite. The quality of our bond data means we can apply SAP to a wide range of securities, from European corporates and LATAM structured products to Asia-Pacific debt and everything in between. Our SAPs are intended to help value transactions and/or holdings that are smaller than the institutional round lot position represented by ICE’s evaluations, and we continue to evolve our offering, given the benefits to market confidence and transparency.
Separately, with all eyes to the U.S. Presidential election next month, there’s been a flurry of press around what history shows regarding equity market risk and return in an election year. I’d wondered if there were equivalent bond market patterns, but after our team crunched the numbers, the short answer is: NOT REALLY! For market pundits, it’s back to reading the tea leaves on jobs data, inflation, Fedspeak and economic growth…
Navigating global markets with a customizable data platform
Most data platforms are built with the needs of the front office in mind, providing traders with up-to-the-second market information to support order execution - but this is just the first step in the transaction lifecycle. By contrast, ICE Connect can be tailored for middle and back-office needs, in addition to the front office. Following the success of ICE Connect across energy and commodity markets, customized data packages have also been created to serve the fixed income and wealth management segments. Read more in this article by ICE’s Vice President of Products and Feeds, Maurisa Baumann.
Chris Edmonds, President, Fixed Income & Data Services at ICE, joins NYSE TV Live
The fixed income markets are experiencing a noticeable shift in demand, pricing, and investor behavior after the recent 50-basis point interest rate cut. Watch this interview with ICE’s President - Fixed Income & Data Services, Christopher Edmonds, to learn why portfolio adjustment is top-of-mind as investors contemplate how to position themselves for what’s next.
Sustainable Bonds: ticking the transition box
What are the latest trends in sustainable bonds? While green bonds continue to dominate the category, transition bonds are posting strong issuance growth. The recent surge in transition bond issuance appears to support the expansion of transition investing - where market participants align their investments and portfolios to their chosen climate/ Net Zero goals. Learn more in this report from ICE’s Climate Transition Manager, Ian Stannard.
Physical Climate Risk Municipal Indices
ICE has launched a new suite of physical climate risk municipal indices that integrates our climate risk scores. The five indices track the performance of securities issued by obligors with different projected vulnerabilities to a range of climate risks, including hurricanes, wildfires and floods.
Fixed Income in Focus
In the latest episode of “Fixed Income in Focus” Morgan Stanley’s Meredith Shaw explores how fixed income ETFs have affected bond prices, liquidity and risk transfer. More broadly, ETFs are enabling the ongoing democratization of bond markets for retail investors - offering access to more complex, exotic parts of the asset class and “star” portfolio managers.
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