Fixed Income in Europe: Ready for the Tornado?

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22 October 2012


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.