From a technological standpoint, the global fixed income markets have evolved significantly in the last decade. A clear illustration of this is the fact that electronic trading has become far more widespread, particularly for the most liquid instruments, like government bonds.

Much of the evolution, which came in the wake of the global financial crisis, was driven by the regulatory demand for greater transparency through ‘on-venue’ trading of over-the-counter instruments. But regulation has not been the only driver. Firms across the buy side and sell side are also constantly seeking ways to:

• increase efficiency 
• reduce their manual processes
• improve workflow
• analyse meaningful and actionable data
• gain access to liquidity.

All these needs are increasingly being satisfied by greater use of technology and automation.

This was particularly evident during the recent UK bond market crisis, when bond yields rose rapidly during September and October 2023 in response to the ‘mini budget’. This crisis also demonstrated the need for high-quality fixed income data in a very volatile market.

There are many challenges that these markets face in their drive towards greater electronification. For example, the global fixed income landscape encompasses a vast number of instruments, many of which trade only rarely.

Also, despite the best intentions of the regulators, a large proportion of fixed income trading is still negotiated bilaterally and isn’t easily automated. This is particularly so in more complex or illiquid instruments.

Even where instruments are electronically traded, the markets are highly fragmented, meaning that firms need to find ways to interact with multiple venues, across multiple trading protocols.

There are also challenges from a macroeconomic perspective. Global bond markets have recently been going through a period of turbulence and volatility not seen since the peak of the pandemic market crisis in March 2020, and before that, the financial crisis in 2008-09.

The inverse relationship between volatility and liquidity (in other words, when volatility increases, liquidity reduces) makes sourcing liquidity even more of a challenge for the buy side. On the other hand, high volatility can lead to trading opportunities that might not otherwise exist. As such, firms need to be able to identify and capitalise on those opportunities.

The fixed income markets have seen an explosion of innovation over the last few years. There are now a number of ‘all-to-all’ electronic trading venues that aim to reduce friction and trading costs by directly matching buyers with sellers.

• Buy side firms now make greater use of portfolio trading tools, allowing them to quickly increase and decrease the size of their portfolios.
• Trading platforms and execution management systems can now access multiple trading venues, providing real-time decision-support analytics, consolidated ‘top of book’ quotes, and execution algos.
• Requests for quotes and their responses are increasingly automated.
• Countless other applications and solutions are offering ways for bond traders to increase efficiency and improve workflow on the trading desk.

It’s also worth highlighting the correlation between fixed income markets and FX, which demonstrates the importance of having technology that covers multiple asset classes.

In such a dynamic, diverse, and rapidly evolving environment, connectivity is crucial, says Angelo Proni, Chief Executive Officer of MTS Euronext Group, an electronic bond market operator.

“It’s critical because all parties in the fixed income value chain are different components of one system. To use the adage that any chain is only as strong as its weakest link, that means they all must work together effectively and efficiently, especially these days, with the reliance on more sophisticated solutions.”

The BT Radianz cloud ecosystem provides instant access, over a single connection, to over 400 providers, thousands of applications, and all the major fixed income platforms globally.

It also provides customers - whether buy-side, sell-side, exchanges or trading venues, application service providers or other parties - with the level of distribution and speed of access they need in the fixed income markets. It does this through a single, secure, scalable connection, providing access to ready-to-use services with built-in security.