Electronic Bond Trading: Reaching the Tipping Point

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14 April 2008


Boston, MA, USA April 14, 2008

The fixed income market has undergone dramatic changes over the past several years and become increasingly electronic. Currently, electronic trading represents 57% of the US fixed income market’s average daily volume (ADV) and is projected to reach 62% of ADV by 2010.

In a new report, , Celent examines the rapid growth in electronic fixed income trading and provides commentary on market drivers and industry trends, in addition to profiling some of the leading electronic platforms.

Electronic fixed income trading volume grew at a CAGR of 17% from 2003 to 2007, when electronic trading accounted for 30% of the US fixed income market. The development of electronic trading has advanced furthest in the most liquid US fixed income segments ... US treasury and mortgage-based securities (MBS). Currently, electronic trading represents nearly 80% of treasury segment volume and 32% of MBS. Today, US corporate bonds are notoriously illiquid and less likely to be traded electronically. Overall, standardization of the fixed income product and the resultant liquidity is the key deciding factor whether a bond will be traded electronically or not.

The development of fixed income electronic platforms has led to a change in market structure and a diversification of product offerings. Major platforms have expanded their product coverage either geographically in Europe and Asia or by entering other markets such as derivatives products. In the US fixed income market, leading electronic interdealer platforms include BGC Partners (eSpeed platform) and ICAP (BrokerTec and EBS platforms), while Tradeweb and MarketAxess lead the dealer-to-client fixed income market. One additional entrant in the US electronic bond market is not a broker, but an exchange: NYSE Euronext.

In order to offer differentiation and create competitive advantage, some electronic trading platforms are including and enhancing value-added services such as STP solutions, expansion into OTC derivatives, and multiasset trading platforms.

Source: SIFMA, Celent analysis

"No single electronic fixed income platform firm is standing still, given the opportunity to increase underserved electronic trading segments. While the current crisis has caused seizures in some credit markets, electronic platforms continue their expansion and rollouts as planned," says David Easthope, senior analyst with Celent's Securities & Investments group and co-author of the report.

This 45-page report contains 32 figures and five tables. A table of contents is available online.

Members of Celent's Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left. Non-members should contact for more information.