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The Future of Fixed Income Digitization

The adoption of technology is rapidly changing the face of Fixed Income investing.

Tom Bradley
May 25, 2021

Today, everyone is talking about yield.  How to construct a portfolio that provides ongoing income, and insulation from risk.  Meanwhile, as recently discussed by ICE, “the digitization of fixed income markets is accelerating. New regulation, the explosion of data, reaction to COVID-led volatility, and demand for greater efficiency will continue to drive change” in a post-COVID world.[1] Now, these two trends are converging in a way that provides real opportunity to broaden the audience for fixed income portfolios.

With the electronic trading boom of 2020 becoming the new normal of 2021, the tools and analytics available to take advantage of this market change have notably lagged in fixed income investing, which has historically suffered from an identity crisis.  While it is multiple times larger than the equity market and intertwined with everyday life for more people, it is still commonly misunderstood, poorly catered to and tightly controlled by large institutions.

Electronic trading has always been synonymous with equities, but in fixed income, trading has historically been done via Request-for-quote (RFQ) through phone or messenger with a closed group of market makers. Over recent years, large companies like MarketAxess and Tradeweb have dramatically altered the landscape with their all-to-all protocols, which help newer, smaller players get a foot in the door with large institutional client trade flow.  Meanwhile, portfolio trading has helped the fixed income ETF boom become a reality. The focus of fixed income modernization has been on the trading and OMS side of the market, and where we at YieldX believe will be source of the next wave of innovation, is in the power of the user experience and depth of engagement in the products. 

Fixed income has historically been disconnected and analog. Something arcane, locked in mystery and history.  It’s no wonder many investors, advisors and clients opt to stick to funds to get a generic exposure.  However, by doing this, they are foregoing the personalization-at-scale potential of the asset class. By building portfolios of fixed income products that are liquid, tailored and intuitive thanks to an institutional grade quant and machine-learning architecture connected with data partnerships such as MarketAxess and ICE, YieldX is revolutionizing fixed income.  We have identified how to help users build personalized bond portfolios in seconds, targeting specific yields or ESG considerations, and know that the bonds are executable, a paradigm shift to the way many have tried to build portfolios in the past. 

E-trading has been gradually creeping into the mainstream for years.  Now its foothold will be leveraged by the entire ecosystem, and with that comes even greater capacity for customization. ETFs and traditional funds have helped fill allocations for fixed income for years.  Now it’s time to for the broader industry to capitalize on the new market dynamics.

[1] https://www.theice.com/insights/market-pulse/fixed-income/insights-series


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