Solve Advisors Blog


Observable Bond Pricing: 5 Reasons Why You Need Better Data in 2017

Eugene Grinberg, February 05, 2017


1. Fragmentation of the Bond Markets

According to recent reports, the number of bond market execution venues has increased to over 100!  A push towards market efficiency is looking like anything but when bond traders need to monitor this many sources.  Since the vast majority of bond trading still happens over unstructured email and chat, traders are forced spend a large portion of their day making sense of these vast amounts of BWICs, OWICs, dealer inventories, bids and offers, and general market color.

2. Best Execution and Other Regulatory Requirements

For Best Execution in particular, one can make an argument that the data that is actually available to traders at the time trading decisions are made is most relevant for analyzing execution efficiency.  With most trading still done over unstructured email a solution would need to accurately parse these incoming messages and present the resulting market data in a structured form.

Market participants have also been adjusting to the changing regulatory environment which mandates access to timely market data.  These changes include SEC's disclosure and liquidity risk management rules as well as MiFID II requirements in Europe.  However, recent claims of the incoming Trump administration and an executive order aimed at reversing the fiduciary rule of the Dodd-Frank is making the landscape less clear.  

3. Algorithmic Trading of Bonds

In recent years, with depressed yields and bid/offer spreads, availability of cheap computing power via cloud technologies, and lessons learned from the evolution of equity markets, a larger percentage of bond trading has been shifting towards algorithms.  For these algorithms to work properly, they need access to a real-time market data feed in addition to historical data for training purposes.  

4. Low Yields and Lack of Opportunities

Bond traders have had a harder time identifying trading opportunities in the current low yield environment.   With the many idiosyncrasies of individual bonds, it naturally takes longer to understand the underlying risks and project cashflows under various stress scenarios.  On top of all this credit work, traders should not have to pore through all the unstructured messages to figure out historical market color and whether bonds of interest are available on BWICs or dealer inventories.

5. Push Towards Enterprise Technology

When it comes to market data, the needs of the middle and back-office, risk, and compliance groups are not that different from the front-office traders and portfolio managers.  Where with trading, the market data is used for pre-trade analysis and decision making, the same data is needed for surveillance, mark to market accounting, and best execution.  Firms are looking to realize cost and operational efficiencies from technologies that are intended for the enterprise.


To learn how Solve Advisors can help you improve access to observable market data: