Electronic Bond Trading: Reaching the Tipping Point

April 14, 2008


Boston, MA, USA April 14, 2008

The fixed income market has undergone dramatic changes over the past several years and become increasingly electronic. Currently, electronic trading represents 57% of the US fixed income market’s average daily volume (ADV) and is projected to reach 62% of ADV by 2010.

In a new report, , Celent examines the rapid growth in electronic fixed income trading and provides commentary on market drivers and industry trends, in addition to profiling some of the leading electronic platforms.

Electronic fixed income trading volume grew at a CAGR of 17% from 2003 to 2007, when electronic trading accounted for 30% of the US fixed income market. The development of electronic trading has advanced furthest in the most liquid US fixed income segments ... US treasury and mortgage-based securities (MBS). Currently, electronic trading represents nearly 80% of treasury segment volume and 32% of MBS. Today, US corporate bonds are notoriously illiquid and less likely to be traded electronically. Overall, standardization of the fixed income product and the resultant liquidity is the key deciding factor whether a bond will be traded electronically or not.

The development of fixed income electronic platforms has led to a change in market structure and a diversification of product offerings. Major platforms have expanded their product coverage either geographically in Europe and Asia or by entering other markets such as derivatives products. In the US fixed income market, leading electronic interdealer platforms include BGC Partners (eSpeed platform) and ICAP (BrokerTec and EBS platforms), while Tradeweb and MarketAxess lead the dealer-to-client fixed income market. One additional entrant in the US electronic bond market is not a broker, but an exchange: NYSE Euronext.

In order to offer differentiation and create competitive advantage, some electronic trading platforms are including and enhancing value-added services such as STP solutions, expansion into OTC derivatives, and multiasset trading platforms.

Source: SIFMA, Celent analysis

"No single electronic fixed income platform firm is standing still, given the opportunity to increase underserved electronic trading segments. While the current crisis has caused seizures in some credit markets, electronic platforms continue their expansion and rollouts as planned," says David Easthope, senior analyst with Celent's Securities & Investments group and co-author of the report.

This 45-page report contains 32 figures and five tables. A table of contents is available online.

Members of Celent's Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Boston, MA, USA April 14, 2008

Executive Summary 03
Introduction 05
  Global Bond Industry Characteristics 07
  Market Size 07
  Market Growth 10
  Growth Projections 11
  US Trading Volumes 14
  Growth Inhibitors 18
The Evolution of Electronic Bond Trading 20
  Market Structure 20
  Role of IDBs 20
  Role of Voice Brokering 22
  Current Business Models 23
The Development of Electronic Trading 26
  Structural Shifts 26
  Profiles of Leading Electronic Platforms 30
  Interdealer Platforms 30
  Dealer-to-Client (D2C) Platforms 35
  Exchanges 40
  Platform Comparisons 44
  Trends in Electronic Bond Trading Platforms 45
  Changes in Market Structure 45
Conclusions 49


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