The robots are coming. The robots are coming!

Corporate bond investors are making up for the loss of market liquidity by deploying new tools that leverage data and analytics – and technologies providers are working to meet that demand.

“If providing buyers and sellers of corporate bonds with tools that allow them to trade with each other marks the first phase of the market’s evolution, gathering, analyzing and putting to work data is phase two,” said Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research, and author of the new report, Tech Transforming a Vast Corporate Bond Market.

With electronic trading in the corporate bond market maturing, liquidity providers are increasingly responding to RFQs below a certain size and/or risk threshold with no input from the trader, using algorithms to calculate a price appropriate for that particular request. This allows dealers to handle the ever-increasing number of RFQs more efficiently, and clients, in turn, receive prices quicker.

“As investors start to utilize algorithms to automatically select the right counterparty for a given trade based on RFQ responses, the bond market will have its first foray into computers trading with computers,” McPartland added.

Providers like Bloomberg, Liquidnet, MarketAxess, Tradeweb, and Trumid are rolling out new and enhanced data and analytics products which are acting as a new draw for investors. Detailed market data beyond what TRACE offers, evaluated pricing, liquidity intelligence, transaction cost analytics, and benchmarks are all evolving quickly and increasingly add to the liquidity story.  Meanwhile, according to Greenwich Associates research, the use of data-driven analytics is growing on the buy side, with TCA used by about one-third of global corporate bond investors.

Technology Enabled Liquidity Sources

Technology has also enabled the rise of new liquidity sources.  For example, the growth of ETFs would be impossible without technology to manage the basis risk and possible tracking errors inherent in using index products. The growth of fixed-income ETFs has brought new liquidity into the underlying corporate bond market.  These firms, many of whom are authorized participants (AP), now contribute a notable amount of liquidity on the top corporate bond trading platforms.

“In coming years, we will see bond trading venues morph into data and analytics providers, with their liquidity pools as the mere foundation of the business,” McPartland said. “The additional insights available to the buy side will help not only traders, but also compliance teams become increasingly comfortable with all-to-all trading, and even, eventually, the idea of buy-side price-making.”