Bloomberg introduces new fixed income pre-trade TCA model

Dan Barnes
Ravi Sawhney, global head of trade automation & analytics, Bloomberg (Photo: Jason Alden).

Bloomberg has launched a new pre-trade transaction cost analysis (TCA) model that helps market participants to assess trade cost, daily executable volume, and probability of execution.

The new model provides pre-trade analysis for investment grade and high yield corporate and sovereign bonds across the globe and offers a liquidity tree across various order sizes. In addition to assessing trade costs, clients can analyse daily executable volume and probability of execution to better inform their trading and portfolio construction decisions. Clients can also run scenario analysis by customizing their views on the bond spread and rating, which results in different cost, probability, and volume in potential trading outcomes.

The model has been calibrated based on five years of historical trade information, proprietary to Bloomberg taking a variety of factors into account. These include: side and size of the order, the real-time Composite Bloomberg Bond Trader (CBBT) bid-ask spread, the amount outstanding, the rating and currency of the bond, and an additional overlay with the bond’s age, term, and time to maturity.

Jan-Theo Varkevisser, global head of fixed income trading, PGGM.

Asset manager PGGM, a Bloomberg Transaction Cost Analysis (BTCA) solution customer, partnered with Bloomberg’s trading quant research team to beta test Bloomberg’s new pre-trade TCA function.

“Reliable pre-trade data for fixed-income is scarce, which makes price discovery and proving best execution a challenge,” explained Jan-Theo Varkevisser, global head of fixed income trading, PGGM. “The product provides us with trusted pre-trade price discovery and an automatic connection to post-trade analysis that ensures a valuable feedback loop for our traders to inform their trading decisions.”

This new model is integrated with BTCA, Bloomberg’s multi-asset transaction cost analysis tool. BTCA is integrated into the core Bloomberg offering so it can access the company’s market data, analytical tools, and trading workflows. It has exception-based workflow and customisable reporting, to help deliver information that users need on demand, along with insight into trading-cost impact and decision support for comprehensive transaction surveillance.

“While trade cost models have become the norm in equities, developing a native model in fixed income markets is an exciting step forward to providing bond traders and portfolio managers with greater pre-trade intelligence.” said Ravi Sawhney, global head of trade automation & analytics, Bloomberg. “The inclusion of pre-trade cost and probability estimates as part of the BTCA offering promotes market transparency and helps bond traders to make decisions that comply with their firms’ best execution requirements. We look forward to being able to offer this and more pre-trade analytics into our suite of electronic trading products in the future.”

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