While 2020 was a tough year on many levels, Lee Olesky, CEO of Tradeweb, has tried to pick out the positives from a market perspective in a letter to clients, seen by The DESK. While noting the many negative events that have characterised the year, he observed that:
• The liquidity crunch that everyone had feared didn’t put a stop to global trading activity. A combination of aggressive central bank intervention, record levels of stimulus and Herculean efforts by institutional investors, dealers, trading venues and other market participants, helped keep disaster at bay amid record trading volumes worldwide.
• While the worst fears of a credit crunch did not materialize in 2020, a worldwide surge in borrowing – driven by both governments and corporate issuers – helped push global debt levels to a record high of $272 trillion through the third quarter. Government bond issuers accounted for $77.6 trillion of that total while nonfinancial corporate issuers accounted for $79.6 trillion. Another $65 trillion in debt was attributable to the financial sector.
• During the second quarter, sustainable fund flows in the U.S. continued at a record pace of $10.4 billion, bringing net inflows for the first half to $20.9 billion, compared with the $21.4 billion of net inflows for all of 2019.
• ESG has begun to gain significant traction with institutional investors and government issuers. This October, the European Commission announced it would be issuing up to €100 billion social bonds, and within days, attracted the highest demand ever in the history of the EU for a bond sale at over €233 billion.
• The UK government also announced that it would be issuing green bonds in 2021. On the institutional side, a growing chorus of banks have been pushing even further into ESG, exploring ESG-linked derivatives for use in deal contingent hedges.
• Access to emerging markets in recent years has become far more seamless, as protocols and tools such as electronic portfolio trading and Tradeweb AllTrade make it easier and more efficient to incorporate emerging markets into a truly global trading strategy. These advances have helped fuel dramatic growth in emerging markets fixed income and derivatives trading.
President Billy Hult concluded, “From our perspective, one of the biggest proof points for the resilience of electronic trading was the fact that relatively new technologies and protocols did not miss a beat during the pandemic. Our portfolio trading protocol, for example, saw over US$20 billion in transactions in October of this year – the highest of any single month since the technology launched in early 2019. Likewise, AiEX, our automated execution technology, and AiPrice, our intelligent pricing technology, were relied upon by market participants at a time when tensions were running high and trust was at a premium.”