What’s the future of fixed income investing? And what role does the AI revolution play in bond markets? To discuss the sector’s biggest questions, the annual ICE Fixed Income Forum gathered industry luminaries - read more about the key themes and watch the replays. Also in this month’s edition, learn about the impact quantitative trading is having on credit markets, and how investors can view opportunities in municipal bonds for the remainder of the year.
As we navigate uncertain yet opportunistic times for bond markets, it was timely to gather some of the industry’s brightest minds at ICE’s Fixed Income Forum to discuss the big questions: What role does the AI revolution play in fixed income markets? How do we keep pace with new product and investment strategies via digital transformation? And what’s the future of fixed income investing?
Some ideas discussed that caught my attention include:
*An explosion of generative AI applications will likely become available for the finance sector, as it becomes cheaper, more efficient and easier to deploy models. Some of the areas that require further research include training large language models (LLMs) on sensitive data, training LLMs to generate results that abide by human principles, and developing LLMs that can self-correct and improve.
*The safe-haven status of Treasuries has been thrown into question, given the realized volatility in long Treasuries has exceeded that of the VIX for some time now. Technical dynamics for the asset class have changed significantly: foreign reserves in Treasuries are declining, the Fed has changed from a net buyer to net seller, and the regulatory regime (Basel III) has been hurtful to liquidity.
*The popularity of ETFs means they’re increasingly seen as a leading indicator for fund flows, and look set to play a larger role in asset allocation. Bonds that are ETF constituents typically have better pricing and liquidity, given the more frequent trading of these instruments. Some speakers predicted that the rise of model portfolios would fuel even greater appetite for ETFs in coming years.
*The ongoing rise of electronic trading and different avenues for execution, means traders and portfolio managers are spending more time on value-add activities, versus executing a long list of trades. This has clear implications for the skillsets needed in those roles, as evidenced by the rise of data scientists in the sector.
*Rather than a clear move from voice to electronic trading, many market participants are using a combination of protocols over the life of the trade. While the use of streaming prices is popular in Europe, RFQ remains the dominant protocol in the U.S. Several non-traditional entrants are also looking to implement equity infrastructure in the credit space, helping to innovate the market.
*Attractive fundamentals for muni bonds mean retail investors are returning to the asset class for the first time, in a long time. For the industry, negative net new issuance means the question of how to put money to work is a key challenge - a dynamic expected to persist for the next few years. Access to accurate pricing and limited liquidity are also major hurdles.
*We’re seeing the rise of custom indexing, supported by new technology that allows customization at scale. As an early participant in index customization, ICE offers a custom index tool that allows clients to move easily from concept to prototype and express their preferences using thousands of individual fields.
Insights
A recent webinar gathered ICE’s municipal bond experts to answer key questions about product development, amid a volatile time for the asset class:
Also in munis, check out our new Muni Bonds Monthly Report, which applies ICE’s data and scores to present analysis on sustainability risks and opportunities for impact investing. In September, there was over $1.9B in high physical climate risk municipal issuance across the 48 contiguous states, the majority concentrated across Alabama, Louisiana, and Florida.
Fixed Income in Focus
What impact is quantitative trading having on credit markets today? And how should investors view the opportunities in municipal bonds for the remainder of the year?
Learn more from the latest Fixed Income in Focus guests: Citigroup’s Head of Global Spread Products Quantitative Trading in North America Britni Ilhe, and PGIM’s Head of Municipal Bonds, Jason Appleson.
Events
The ICE Fixed Income Forum gathered financial experts and thought leaders to address industry challenges and opportunities, and sought to uncover solutions to help advance financial markets.
Led by a keynote discussion with BlackRock's Co-Head of Global Trading Dan Veiner, this event featured panel discussions that explored a range of topics, from electronification of trading workflows and advancements in AI/cloud technology to indexing & ETF strategies and valuation best practices.
The event also featured a fire-side chat with McLaren Racing CEO Zak Brown about the importance of data in racing.
Manage risk, uncover opportunities, and make informed decisions in real-time with ICE’s end-to-end fixed income solutions. Reimagine your fixed income workflow from price transparency & discovery and efficient execution through to performance analysis.
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