Though the US corporate bond and US treasury market has surged in size since the financial crisis in 2008, the unprecedented growth of US debt markets alongside a complete US regulatory overhaul has left the traditional market unstable and ushered in an age of innovation.
TABB Group’s new research, “US Fixed Income Market: Industry Trends & Drivers 2016”, the third in a series of annual reports tracking a growing list of critical factors threatening OTC fixed income markets in a post-financial crisis world, considers the past and the future to outline patterns that define the new OTC fixed income ecosystem of today.
Report co-authors Anthony Perrotta Jr (pictured) and Colby Jenkins outline the evolution of the structural components of the market and expand on some of the nuanced trends present in the OTC rates, credit and swaps markets to help participations better understand the realities of today’s ecosystem and what to expect looking forward.
According to the report, total US bonds notional outstanding has grown by 22 per cent since 2008 to over USD40 trillion, while notional outstanding in OTC interest rate derivatives has fallen nearly 20 per cent since late 2014.
Some USD8.6 trillion was traded on SEF monthly for 2016 on average, representing 30 per cent growth from 2014.
In addition, electronic trading accounts for more than USD5.9 trillion in notional volume for interest rate derivatives each month in 2016, while average daily volume in US Treasury securities has fallen by 11 per cent since 2007, and balance sheet capacity for the 10 largest dealers for corporate bonds has dropped by 24 per cent since 2008 and 47 per cent for US Treasury securities over the same period.
“2016 was a year of adaption and 2017 may bring a whole new set of obstacles for the US and global fixed income markets against a backdrop of relentless growth,” says Perrotta. “Within the context of this evolving ecosystem, market participants must now face the challenge of balancing the old and new. Innovation and collaboration between investors, service providers and dealers is non-negotiable in order for all participants to thrive within this market landscape.”
