Pulling Together the Fixed Income Picture

There is an information gap in fixed income markets, and it’s getting wider. Fixed income markets lack any centralized infrastructure and have never distributed consolidated price data; the number of non-fungible instruments traded, dealers’ withdrawal from market-making activity, and the proliferation of venues have made obtaining a complete liquidity picture more difficult than ever. To make the economics of the wider market work and find real opportunity in the expanding ecosystem of fixed income trading, buy- and sell-side firms will have to work out how to get low-cost connectivity first.

There is an information gap in fixed income markets. They lack any legacy of centralized infrastructure, have never distributed consolidated price data, and inevitably, regulation does not require orders to be pushed around looking for the best bid/offer because there is no consolidated record of a national best bid and offer (NBBO). Several developments have widened these gaps. First, the low-interest rate environment has encouraged bond issuance to reach record levels, increasing the number of instruments available in the primary and secondary markets. The number of non-fungible instruments traded is an inherent problem in fixed income markets. National government bond markets have one issuer; corporate bonds have an enormous range, as do municipal bond markets. Each of these can issue…