Part Three
Managing Risks and Unlocking Liquidity
Macro Risks to Returns
Macroeconomic and political uncertainty remain the dominant forces shaping investment returns in European fixed income
Our survey shows that post-election policy uncertainty in major economies was cited by 54% of respondents as the greatest risk, closely followed by fiscal policy shifts and rising government debt burdens (51%) and slowing global growth with potential recession risk (46%).
By contrast, inflation, FX volatility, and technological disruption ranked much lower, reflecting a shift in focus toward structural policy and fiscal drivers. The message is clear: buy-side leaders are watching policymakers as closely as markets when assessing risk to returns.
Liquidity Challenges
Liquidity provision remains a central challenge. Regulatory constraints were identified by 35% of respondents as the biggest barrier, ahead of technology and connectivity limitations (25%) and the cost of market data (20%).
Smaller but still material obstacles included counterparty access (12%) and inefficient post-trade processes (6%). Market fragmentation and pre-trade pricing transparency were viewed as minor issues. The findings underscore how much liquidity provision is shaped by policy, infrastructure, and cost factors, rather than pure market dynamics.
Improving Trading Performance
When asked which approaches are most effective for improving bond trading performance, buy-side leaders revealed a blend of traditional and innovative strategies.
Expanding relationships with traditional banks (29%) remains the top response, highlighting continued reliance on dealer expertise. At the same time, 22% see integrating AI/ML tools for trade optimisation and liquidity sourcing as the most effective approach, signalling growing momentum for technology-driven solutions.
Less popular options included collaborating more closely with peers (4%), leveraging non-bank liquidity providers (4%), and diversifying counterparty mix (0%). These results suggest that while technology is gaining ground, traditional bank relationships still underpin trading performance.
Which approach do you see as most effective for improving bond trading performance?
Expanding relationships with traditional banks
Integrating AI/ML tools for trade optimisation and liquidity sourcing
Improving pre-trade analytics and data-driven decision-making
Enhancing trading technology
Leveraging non-bank liquidity providers
Collaborating more closely with buy- and sell-side peers on liquidity initiatives
What is your primary strategy for sourcing liquidity in less liquid instruments?
Increasing use of portfolio trading
Leveraging all-to-all trading venues
Using request-for-quote (RFQ) platforms
Expanding non-bank counterparty relationships
Internal crossing and internalisation
Sourcing Liquidity in Less Liquid Instruments
In less liquid instruments, portfolio trading and all-to-all venues are now mainstream tools for liquidity access.
Forty-two per cent of respondents said they are increasing use of portfolio trading, while 37% highlighted all-to-all venues.
Other strategies barely registered, with just 6% citing non-bank counterparty relationships and only 1% pointing to internal crossing.
This indicates a decisive preference for scalable, market-wide solutions rather than idiosyncratic approaches.
