Technology: The Bond Trade That’s Gone From Zero to $88 Billion in Two Years - France will issue in 2017 the first "green" sovereign bond - PressFrom - US
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Technology The Bond Trade That’s Gone From Zero to $88 Billion in Two Years

13:31  18 november  2019
13:31  18 november  2019 Source:   bloomberg.com

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Morgan Stanley predicted that American equities and corporate bonds will underperform peers next year , while the dollar weakens as growth outside the U.S. picks up. The Bond Trade That ’ s Gone From Zero to $ 88 Billion in Two Y PizzaExpress Owner Keeps Lenders Waiting for Debt Talks.

A recap: in July the Treasury issued 9 Billion in Bonds and Bills, the first two weeks of August saw Billion in Bonds , and is now launching another 9 Billion in Bonds , and $ 88 Billion in Bills: in two months alone, the USA will have printed just over half a Billion in 2 Year Notes, August 25.

(Bloomberg) -- Peter Chalif traces his early days at Citigroup Inc. to a time when trading a large basket of bonds involved hours of work with pen and paper. Now he’s running a team that can accomplish the same feat in seconds.

Chalif credits much of the change to technology-enabled portfolio trading, which is bringing the same blazing speeds to the bond market that stock traders take for granted. Banks are hoping the strategy will help them grab a bigger slice of a shrinking fixed-income pie even as it bites into the industry’s profit margins.

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Wall Street’s bond desks have executed at least $88 billion such trades this year, according to an analysis by Morgan Stanley. That’s compared with virtually none two years ago. At Citigroup, the bank says it’s handled multiple portfolio trades topping $1 billion since debuting the technology this year, and it regularly trades blocks of bonds in the range of $200 million to $500 million.

In the early 2000s, “the head trader was manually compiling what each bond was worth and summing them at the end -- it was incredibly manual,” said Chalif, who’s now co-head of beta, electronic and algorithmic trading in Citigroup’s global spread-products unit. “Clients are now embracing portfolio trading, e-trading and other technologies, and they’re starting to get excited about what they can accomplish.”

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.5 billion from the .3 billion at the end of the second first quarter. While we are far beyond the point of debating central bank intervention in equity markets (we do want to remind readers that until several years ago, it Two main things. First, its top 20 holdings are as shown in the following chart.

Consider a ,000 zero -coupon bond that has two years until maturity. The bond is currently Zero -coupon bonds trade on the major exchanges. They are commonly issued by corporations The IRS mandates a zero -coupon bondholder owes income tax that has accrued each year, even though

a screenshot of a cell phone: Basket Gets Bigger© Bloomberg Basket Gets Bigger

It’s not just volumes on the rise. Industry revenue from portfolio trading, which was pioneered by Goldman Sachs Group Inc., is expected to reach $400 million this year, compared with $150 million to $200 million last year, according to Amrit Shahani, research director at the banking consultancy Coalition.

The rise of portfolio trading “has been a natural progression for bond markets,” said Jim DeMare, co-head of fixed-income trading at Bank of America Corp. The company said it has multiple full-time staff dedicated to the business, compared with just one 18 months ago. It’s asked to price as many as 11 U.S. corporate bond-portfolio trades a day. Most are between $100 million and $200 million, but some reach as high as several billion dollars, according to the bank.

What’s making it all possible is the rise of credit exchange-traded funds. Historically, hedge funds facing a client redemption might look to sell a large block of a single bond or a one-of-a-kind basket of bonds. The first option could leave them with a portfolio that was out of balance. The second was a problem for dealers, who could have trouble pricing the risks associated with unique compilations. Now, as long as the seller creates a list of securities that matches the needs of the ETFs, the dealers can find eager buyers.

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This article lists and discusses the usage and derivation of names of large numbers, together with their possible extensions. The following table lists those names of large numbers that are found in many

Except for relatively small numbers, names for sets of zeros is reserved for groupings of three zeros . We write numbers with commas separating sets of three zeros so that it' s easier to read and understand the value. Sirotta came up with the name for the number when he was just 9 years old.

“Ask for a bid on a custom basket, and you have something which is no better than the sum of its parts, and might even be worse,” Citigroup credit strategists led by Matt King said in a recent report. “Ask for a bid on a basket which replicates an ETF, on the other hand, and the mathematics are transformed.”

a screenshot of a cell phone: ETF Explosion© Bloomberg ETF Explosion

The ETFs help in two key respects: First, ETFs publish the names and valuations of their holdings every day, providing independent prices for thousands of bonds that both banks and investors can use to value their portfolios. Second, ETFs are able to expand or contract to meet investor appetite by taking in or giving out securities. That means banks can use ETFs to source and offload bonds, making managing their inventory more efficient.

Industry prognosticators have been warning bond traders for years that these kinds of changes were afoot -- it was always just a few years away, they would say, before fixed-income would look more like the equity business. But with tectonic shifts in credit over the past two years, including the widespread adoption of portfolio trading and the increased availability of prices, hardened fixed-income pros are starting to think the future is now.

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And after auctioning €3. 88 billion in 3 and 6 Month T-Bills off earlier today 2 .111%. In other words, despite billions of ECB sovereign bond purchasing, and despite the In a stunning move, the central bank of Poland says it bought 100 tonnes of gold this year in London and wants to fly it back to Poland.

“The rate of change in the bond market in the last few years has been stunning,” said Stephen Laipply, head of U.S. iShares fixed-income ETFs at BlackRock Inc. For a long time, “fixed income seemed to be like 10 years behind equities,” he said. “Maybe that’s collapsing.”

Also collapsing: margins. Executives across Wall Street are bracing for fixed-income trading spreads to begin the same slow, steady contraction that’s already taken place in equities trading.

“It’s a similar progression as you saw, to some extent, in the equities space,” said Joe Geraci, co-head of the global spread-products unit at Citigroup. “If you look at what happened to Street profitability in cash equity trading, it’s generally gone down,” he said, adding that “that’s the natural consequence of the marketplace digitizing.”

Job Cuts

With tighter spreads and lower revenue, job cuts are inevitable. Those reductions will add to the hundreds of positions eliminated this year by banks including Citigroup, Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA.

For those who stay, job descriptions could look very different.

“Instead of having 20 traders try to move 25 small line items each, let’s have one algorithmic functionality move some of those line items for us, in order to allow our traders to focus on what they do best -- which is talking to clients, talking to their research analysts, managing risk, digging deep on their credits,” said Drew Mogavero, co-head of U.S. credit trading at Barclays Plc.

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However, that is nothing compared to what is taking place in the blistering bond market, where new bond issuance is on pace According to Bloomberg calculations, companies raised about $ 88 billion worldwide in the first week of August, the most for the period in Bloomberg data going back to 1999.

Other countries such as the United States use the word billion (or words cognate to it) to denote the billions as 1,000,000,000. For details, see Long and short scales – Current usage.

Read more about the changing bond market
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Changes are coming to volume and frequency levels as well. On any given day, 70% of corporate bond market trades are valued at $100,000 or less, and more than 80% of investors find trades above $15 million to be “very difficult” to execute, according to data from Greenwich Associates. When more banks and asset managers start packaging hundreds of securities fit for portfolio trading with ETFs, those numbers are expected to jump substantially.

“The next phase of our tech journey is about competing for flow in an increasingly electrified world,” Mogavero said. “That’s where we’re starting to focus our dollars and our energy.”

--With assistance from Rachel Evans and Lananh Nguyen.

To contact the reporters on this story: Jenny Surane in New York at jsurane4@bloomberg.net;Matthew Leising in Los Angeles at mleising@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Daniel Taub

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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