The Electronic Credit Trading Revolution Isn’t Just for Wall Street

March 11, 2022

As the narrative around the electronic trading revolution in fixed income gathers speed, it’s fair to assume plenty of non-institutional clients are wondering why it really matters to them. 

Fixed Income markets have long since felt like a closed group for institutional investors, since nearly all technology advances and considerations have been focused on the biggest brokers and fund managers. While that has been true, the benefits are rapidly trickling down to the advisor and individual.

Portfolio trading, Algo trading, AI pricing and Auto-ex. These terms sound like jargon to many in fixed income, but they’ve been commonplace in the equity and FX markets for what feels like a lifetime. 

Historically, bonds have been traded OTC due to their often-illiquid nature and a lack of pricing transparency, meaning smaller brokers have struggled to carve out a niche. Imagine trying to buy a house without any transparency into the recent prices of other houses on the block or in the neighborhood! 

Technology has facilitated a change from calling up for prices 1by1, thus creating a bias to a few, to sending out an RFQ to every bank and broker on the street. This opening up of order flow has created the opportunity for smaller players to focus on certain sectors or size inquiries and compete aggressively with the large incumbents. 

Portfolio trading, driven by ETF proliferation, has sped up the process of pricing large lists of bonds, and Auto-Ex has meant traders can far more easily price hundreds of small trades a day, whereas before they may have just ignored the inquiry. 

According to a recent Tradeweb article, “It is clear that we are coming up on a new era of electronic credit trading. If this pace of digital adoption continues, we expect electronic trading to play an increasingly dominant role in credit markets.”

Now that electronic communication of orders, pricing and confirmation has picked up momentum to become the norm, data flow has accelerated equally. 

So, how does that help non-institutional investors? 

All the recent trading and data innovation has spawned the age of fixed income tools that can leverage the vast improvements in liquidity and pricing for investors at the non-institutional level. 

YieldX uses advanced quantitative and AI technology to curate actionable trade ideas, portfolios and optimizations that are executable and priced in line with the market. The old concept of building a portfolio and then hoping to find the bonds has been flipped on its head. YieldX builds portfolios from the most liquid, actively traded, and reliable executable bonds while leveraging data from institutional market sources. The historical bias to funds over bonds due to complexity of execution can be meaningfully challenged now. Advisors can build portfolios with confidence and execute them reliably within their custodian ecosystem or using outsourced brokers. 

Building optimized portfolios of executable bonds that can be managed over time to stay on track to a yield or risk target was once a pipedream. 

YieldX is changing all that. 

Get in touch with our team to learn more.