How Will Intelligent Technology Revolutionize the Fixed-Income Market? Posted on : Sep 22 - 2018

"After having experienced both the sell-side and the buy-side as a bond trader, it was clear to me that asset managers needed a more resilient market structure with more independent avenues to access liquidity, especially with reduced capital commitment and risk-taking by traditional intermediaries," explains Constantinos Antoniades, the Head of Fixed-Income at Liquidnet. "Equally important, asset managers until relatively recently had no tools to access liquidity directly from their peers for a better implementation of their investment strategies."

"The corporate bond market has evolved dramatically over the last few years, with electronic trading playing a much bigger role in liquidity and price formation. Nevertheless, what we have seen so far is just the beginning."

Antoniades is not wrong and he is well positioned to make such a judgment.

Since Liquidnet acquired Vega-Chi - the first buy-side to buy-side corporate bond and convertible bond trading platform, incidentally set by up Antoniades - four years ago it has become the largest pool of corporate bond buy-side liquidity in the world. Currently, the company has more than $15 billion in buy-side liquidity.

Long-considered to be an industry which has lagged behind others within the business market and world of risk management, with its reliance on trading conducted over the phone and lack of transparency, fixed-income trading is now starting to catch up. Liquidnet has been at the forefront of this change for over a decade and the organization now plans to launch an emerging markets platform to help its members source further liquidity.

What Is Emerging Technology In Fixed-Income Markets?

Innovation within fixed-income markets refers to the emergence of several new forms of technologies.

The first is that of machine learning and artificial intelligence, often referred to as AI. Here, algorithms can be used to analyze and identify trends within data sets far quicker than any human being, regardless of their experience or knowledge of the markets. This data analytics allows a trader with the correct software to be able to identify changes in bond price and security immediately and make more qualified decisions. Technology can also save time and open previously unknown sources of liquidity. Instead of asset managers on the buy-side having to manually make inquiries, the software can identify liquidity and facilitate trades.

Secondly, indexing can increasingly be used to predict the performance of a specific set of bonds. Intelligent software can be employed to put together individual bonds, forming an index fund. The value of the index fund can then be used to decipher a predicted value of a section of the bond market, giving asset managers an idea of any potential return on investment. Machine learning means that traders can alter the bonds that make up an index fund with the click of a button and discover how different bond combinations will likely fare, making investments less risky. View More