US treasury trading is at the vanguard of the rapid change sweeping the fixed income market.

Celent has released a new report titled Rates Revolution — US Treasuries: Technology for a Fragmenting Market. The report was written by Brad Bailey, a Research Director with Celent’s Securities & Investments practice.

In this report, Celent looks at the US treasury market and the remapping of banks’ fixed income infrastructure. Banks are retooling their models for trading and market-making, with an analytical focus on client engagement. Buy side firms are repositioning their infrastructure to best engage with these changes.

On the sell side, the US treasury market is at an inflection point driven by rapidly changing demands from the buy side. The largest, most sophisticated asset managers are demanding more alternatives, more access, and more analytical insight into their treasury trading.

The US rates market resembles the FX market five years ago; it is at the verge of major technology changes, alternative business models, and competitive shake out, with rapidly changing ways of sourcing liquidity. Alternative business models are driving changes to treasury trading more than anything else.

“Rates trading becomes more crucial in a period of changing interest rates. We are at an inflection in interest rate expectations, as well as the inflection when rates trading goes from analog to digital,” commented Bailey.

“There is a wholesale rearchitecting of the treasury trading business across all tiers of investment banks. This has huge implications for how the buy side engages, partners, and sources treasury liquidity.” he added.