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US fixed income hedge funds expand influence

Fixed income trading volume generated by US hedge funds increased more than 30 per cent from Q2 2011 to Q2 2012, according to the results of Greenwich Associates 2012 North American Fixed Income Study.

That growth far surpassed the 20 per cent increase in trading volumes among all institutions and a 14 per cent pick-up in trading volumes among other types of funds and advisers. As a result, hedge funds increased their clout as a source of US fixed income activity.
In 2011 hedge funds generated 18 per cent of overall fixed income trading volume in the United States. In 2012 that share grew to 24 per cent.

“However, reflecting the broader trends in market trading flows, hedge fund trading volumes in investment-grade credit actually dropped roughly 60 per cent during the period in our study — even as their overall fixed-income volume grew substantially,” says Greenwich Associates consultant Tim Sangston. “Meanwhile, hedge fund government bond trading volumes more than doubled.”
As a result of the sharp pick-up in hedge fund trading activity, these investors are expanding their presence within individual fixed-income products. In US government bonds, for example, hedge funds in the year ending Q2 2011 generated just 13 per cent of total US trading volume. In the same period ending in Q2 2012, hedge funds accounted for almost a quarter (24 per cent) of volume.

In distressed debt and high-yield credit derivatives, hedge funds generated more than 70 per cent of total trading volume in the year covered in the research.

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