Navigating the Complexities of Price Transparency in Fixed-Income Trading
By Karthick Chandrasekaran Executive Director, Pricing, Valuations & Reference data S&P Global Market Intelligence
As fixed-income markets continue to develop electronically, traders now face a strategic decision with every transaction.
From portfolio trading to all-to-all platforms and auction systems, the increase in options has transformed how bonds are traded - introducing both opportunities and complexities that require data-driven decision-making.
Choosing the right protocol depends on trade size, market conditions, and investor needs. Making an informed decision can enhance execution efficiency and lower transaction costs.
Portfolio trades have been a popular choice for many asset managers when trading illiquid bonds. According to the research in this report, 42% of participants regarded portfolio trading (PT) as their primary method for accessing liquidity in illiquid bonds. In comparison, 37% were interested in utilising all-to-all trading protocols for semi-liquid and illiquid bonds.
Accurate and timely data is crucial for evaluating market conditions and establishing the fair value of bonds in portfolio trades. Advanced analytics that can adapt in real-time, providing machine-readable outputs while remaining understandable to human users, allow traders to price their bond baskets competitively, ensuring they stay agile in a changing market.
Pricing in fixed income is fragmented and complex - and that can distort performance. This video shows how S&P Global Market Intelligence delivers independent, intraday valuations that cut through the noise, giving traders the transparency and confidence to act decisively.
S&P Global Market Intelligence has collaborated with MarketAxess to offer reliable, timely pricing for corporate and sovereign bonds. We’ve created unique insights by combining MarketAxess trading platform data and MarketAxess TraX transaction data with S&P Global’s modelling capabilities to determine valuations across the bond universe.
Many bonds in portfolio trades may not have traded for days or weeks, making it difficult to obtain reliable prices. A few mispriced bonds can distort the economics of the entire trade, affecting costs and performance, especially when the market often uses portfolio trading to rebalance portfolios, rotate sectors, or manage inflows and outflows in mutual funds. 84% of respondents in a recently conducted FILS survey indicated it was important to have access to high-quality pricing and liquidity analytics as a fixed income trading function.
The adoption of ETFs into institutional investors' toolkits has paralleled the growth of portfolio trading as a protocol. 88% of respondents in the recent FILS survey expressed confidence in using ETFs as a means of liquidity and price discovery during periods of market stress, while a similarly high proportion considered good-quality pricing and liquidity analytics valuable for supporting fixed-income ETF investment decisions.
ETF prices are continuously updated on the exchange, providing a real-time reflection of the market price. Authorised Participants (APs) use these prices along with evaluated pricing from S&P Global Market Intelligence, especially for ETFs benchmarked to S&P Dow Jones Fixed Income Indices, to anchor bond basket valuations.
The integration of MarketAxess CP+™ in S&P Global Market Intelligence's bond evaluations creates a feedback loop that enhances price transparency across both ETF and cash bond markets. For APs, understanding the difference between intraday and end-of-day pricing is crucial. Intraday pricing offers real-time insights, allowing for swift strategy adjustments, while the end-of-day price is used to settle those trades.
As the landscape continues to evolve, leveraging accurate data and advanced analytics will be essential for traders aiming to maintain a competitive edge. Embracing these tools will not only enhance decision-making but also help create a more transparent and efficient fixed-income market.
