Rates Revolution — US Treasuries: Technology for a Fragmenting Market

by Brad Bailey, April 20, 2017
Industry Trends
EMEA, North America

Abstract

US treasury trading is at the vanguard of the rapid change sweeping the fixed income market.

Celent has released a new report titled Rates Revolution — US Treasuries: Technology for a Fragmenting Market. The report was written by Brad Bailey, a Research Director with Celent’s Securities & Investments practice.

In this report, Celent looks at the US treasury market and the remapping of banks’ fixed income infrastructure. Banks are retooling their models for trading and market-making, with an analytical focus on client engagement. Buy side firms are repositioning their infrastructure to best engage with these changes.

On the sell side, the US treasury market is at an inflection point driven by rapidly changing demands from the buy side. The largest, most sophisticated asset managers are demanding more alternatives, more access, and more analytical insight into their treasury trading.

The US rates market resembles the FX market five years ago; it is at the verge of major technology changes, alternative business models, and competitive shake out, with rapidly changing ways of sourcing liquidity. Alternative business models are driving changes to treasury trading more than anything else.

“Rates trading becomes more crucial in a period of changing interest rates. We are at an inflection in interest rate expectations, as well as the inflection when rates trading goes from analog to digital,” commented Bailey.

“There is a wholesale rearchitecting of the treasury trading business across all tiers of investment banks. This has huge implications for how the buy side engages, partners, and sources treasury liquidity.” he added.

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
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

Introduction

2

Key Takeaways

4

US Treasury Market Structure Trends

5

 

Major Trends

5

 

US Treasury Market Structure Trends

6

 

Products in the Treasury — More Than One Way to Express a View

10

Treasury Trading Technology

11

 

Liquidity Provision and Engagement Evolution

11

 

Treasury Trading Technology and Vendors

13

Venue Landscape

15

 

Venue Landscape

15

 

Evolving Models for Treasury Trading

17

Conclusion

19

Leveraging Celent’s Expertise

20

 

Support for Financial Institutions

20

 

Support for Vendors

20

Related Celent Research

21

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