Fixed Income in Europe: Ready for the Tornado?

by Axel Pierron,  Joséphine de Chazournes, October 23, 2012
Industry Trends
EMEA

Abstract

Both the government bond market and the non-government bond markets have increased outstanding debt levels in Europe by 11% overall since 2009, with the March 2012 level of debt outstanding at US$34.3 trillion. However, secondary trading activity is significantly down in both markets because of high market uncertainty, slowing down the electronification trend.

Cash European fixed income markets have seen many changes since 2009, when Celent last evaluated this market, according to the report,  Fixed Income in Europe: Ready for the Tornado?  In 2012, European average daily value in government bonds is estimated at €52 billion overall, down 10% from €58 billion in 2009. European non-government bonds ADV is down 48% from 2009 levels to €13 billion in 2012.

It raises the question of how long this cyclical downturn will last in Europe, but one cannot manage a business hoping for better market conditions. The winning market players are the ones that have five projects in parallel that assess all the possible scenarios and what should be done in any of these five events. What can be done if liquidity remains low? Current winning solutions are around liquidity aggregation (retail and/or institutional) and liquidity concentration (through consortiums or auctions) because the fixed income market is not one in which liquidity can be created.

 

“The main causes of this downturn are the deepening of the economic crisis facing Europe, the continued uncertainty surrounding the euro, and the instability of the global financial system,” says  Axel Pierron, Senior Vice President of Celent’s Securities & Investments Practice and coauthor of the report.

“A myriad of regulations have been and continue to be drafted in an attempt to provide more stability, security, and transparency,” adds  Josephine de Chazournes, Senior Analyst with Celent’s Securities & Investments Practice and coauthor of the report. “These will have a tremendous impact on the European cash fixed income markets, in terms of both trading volumes and potential revenues.”

This report provides an update of the October 2009 Celent report Electronic Trading of Bonds in Europe: Weathering the Storm. It is a quantitative report, sizing the European cash fixed income market.

This 29-page report contains 32 figures.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary

1

Introduction

3

Market Overview

4

 

Market Size

4

 

Market Structure

6

The Government Bonds Market

11

 

The Interdealer Market

14

 

The Dealer-to-Client Market

15

The Non-Government Bonds Market

17

 

The Interdealer Market

19

 

The Dealer-to-Client Market

19

The Electronic Trading Platforms

22

 

The Interdealer Market

22

 

The Dealer-to-Client Market

23

Conclusion

27

Leveraging Celent’s Expertise

28

 

Support for Financial Institutions

28

 

Support for Vendors

28

Related Celent Research

29

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