A record share of U.S. corporate-bond trading has moved to computers as buyers who traditionally transacted over the phone seek faster ways to buy and sell in a market where Wall Street’s human traders are retreating.
Investment-grade volumes on MarketAxess Holdings Inc.’s electronic system are on pace to exceed $400 billion in 2013 after surging 45 percent to $44 billion in September from a year earlier, according to data from the company, which estimates it captures about 90 percent of electronic trades among the dollar- denominated notes. That’s equal to 14.3 percent of all market activity, including business done over the phone, up from 12.2 percent a year earlier.
Moving to electronic bond-trading systems may reduce transaction costs by as much as five times because it forces dealers to compete more openly through automated auctions, according to a study last year by Terrence Hendershott, an associate professor at the Haas School of Business at the University of California at Berkeley, and Ananth Madhavan, global head of trading research at New York-based BlackRock.
While the dollar-denominated investment-grade bond market has increased 71 percent since 2008 to about $4.3 trillion, the size of each transaction declined to about $565,000 in the three months ended June 30, compared with about $970,000 in the first three months of 2007, according to Trace, Finra’s bond-price reporting system, which tracks both electronic transactions and those negotiated over the phone. The average investment-grade trade on MarketAxess’ system was $600,000, according to Rick McVey, the company’s chief executive officer.
Elsewhere in credit markets, a measure of corporate credit risk in the U.S. fell to an almost five-month low as Senate leaders were poised to reach an agreement as early as today to bring a halt to a fiscal standoff that has threatened to tip the nation into default. Creditors of Energy Future Holdings Corp., taken private in the biggest leveraged buyout on record, will keep negotiating for a restructuring plan after one group quit confidential talks.
Creditors are seeking to reach terms on a pre-arranged bankruptcy filing by Nov. 1, the filing shows. Lenders are divided over how much of Energy Future’s $43.6 billion in debt will be extinguished, and how lenders will carve up ownership of the Texas power company. Energy Future is due to make about $270 million in interest payments Nov. 1 -- cash more senior creditors want the company to retain by filing for bankruptcy.