The US fixed income market will reach USD 35 trillion in 2010, according to a new report, "Electronic Bond Trading in the US Market" from Celent, a Boston-based financial researc
The US fixed income market will reach USD 35 trillion in 2010, according to a new report, "Electronic Bond Trading in the US Market" from Celent, a Boston-based financial research and consulting firm.
The US fixed income market has experienced impressive growth over the past decade, with revenues rising from USD 12 trillion in 1996 to USD 29.2 trillion in 2007, representing a CAGR of 7.7%.
Key findings of the report include:
- In 2006, the global fixed income market stood at USD67.8 trillion. The US fixed income market is the largest marketplace, with over USD 27.4 trillion representing approximately 40% of the global fixed income market.
- The second largest bond market is Europe, representing approximately USD 24.3 trillion in total revenues; Germany accounts for USD 4.8 trillion and Italy represents USD 3.5 trillion. The recent sub-prime crisis showed the weight of the US fixed income market in the global economy and the diversity of instruments that compose this market.
- Since 2003, the market has become increasingly electronic. Electronic trading currently represents more than 60% of the fixed income market, with a CAGR of 19%.
- The development of electronic trading occurred particularly in the most liquid fixed income segments, which are US treasury and mortgage-based securities (MBS). Treasury instruments represented an average daily trading volume of USD 539.5 billion for the first half of 2007, and MBS reached an average daily trading volume of USD 319.3 during the same period. Currently, electronic trading represents nearly 88% of the treasury segment and more than 31% of MBS. Celent expects that 90% of the treasury segment and nearly 35% of the MBS segment will be electronically traded in 2010.
- The largest fixed income product segment is the mortgage-related securities segment, which represents nearly one-fourth of the US market with approximately USD 7.1 trillion in outstanding debt in 2007. There is growth potential in this segment, as only 31% of these trades are conducted electronically. This segment has also been particularly affected by the subprime crisis, which has forced market players to re-evaluate risks and pricing of mortgage-based instruments.
- The development of fixed income electronic platforms led to a change in market structure and a diversification of product offerings towards multi-asset trading. Major electronic platforms have expanded their product coverage either geographically in Europe and Asia or by entering other markets such as derivatives. Electronic platforms are also increasing their focus on value-added services such as post-trade processing or regulatory services.
