Three quarters say buy-side main source of liquidity in fixed income


By Flora McFarlane.

Ahead of the November Fixed Income Leaders Summit, WBR research has found 75% of buy-side firms consider the main source of liquidity to be flowing from asset managers and hedge funds. In addition, 78% of buy-side firms are looking to each other for more efficient liquidity sourcing.  

Respondents revealed that they consider asset managers and hedge funds to be the biggest providers of liquidity in the post-2008 crisis market, which supports the view that as liquidity becomes more difficult to source, firms are now willing to look outside the traditional broker/dealer relationship to generate the most value.

With 55% stating that sourcing liquidity is the biggest challenge facing trading desks at the moment, it does not come as a surprise that the buy-side is becoming more creative in their approaches to finding liquidity. 

Carl James, global head of fixed income trading at Pictet Asset Management said, “There are different styles of execution being used in the market and people are looking for liquidity wherever they can find it”.

High costs facing the buy-side in an upcoming post-MiFID II unbundled world are also a factor in the push for creative sourcing of liquidity, with David Saab, managing director of JP Morgan Private Bank explaining that to “cut the middle man out” is a logical step to take. 

Saab said, “Generating value from the sell-side partners scores low as investors have moved to a post MiFID II world and are not ready to pay for it”.  

With investors prioritising implementing new fixed income technology (54%) and finding alternative methods to source liquidity (43%), the buy side is indicating that new technology, or unconventional liquidity sources are avenues to explore are real possibilities, leaving the sell-side to wonder how to fit into the way the market is evolving. 

Brigitte le Bris, managing director, FX and global bonds at Natixis, said that the results “appear to support the case that the buy side desks need to start working together going forward.” 

And following on from this week’s Liquidnet survey results reflecting the uncertain future of transaction cost analysis (TCA) in fixed income, WBR’s analysis revealed that portfolio analysis was rated as the best use (36%) in the trading workflow.

Indicating the general influence that the buy-side has to direct change, when discussing TCA’s limited efficiency in fixed income, James reflected the general trend of the market.

“The industry should strive for a higher standard, it’s all about evaluating the process”.

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