Where bond markets were once characterized by the dominance of institutions, illiquidity, and price opacity, seismic shifts are changing these dynamics. Key themes which underpin these shifts include money management based on indices, the rise of electronic trading, the broader role of ETFs, and the proliferation of small trades. First, rather than being overweight a specific credit, many market participants are showing a preference for managing broad exposure based on an index - a strategy which allows them to more easily move large blocks of risk across markets. Second, electronic trading - enabled by more sophisticated data and technology - is surging in segments like Treasuries and corporates, while it grows more steadily in municipal bonds. This supports price transparency and trading efficiency, allowing automated execution for trades which meet specific criteria. Third, the role of ETFs has broadened beyond being a retail investment vehicle. Now, they are also seen as an efficient risk management tool, allowing portfolio managers to trade with a dealer community that is in a better position to offset risk through the ETF create/redeem process. Finally, the rising volume of smaller trade sizes - a consequence of vehicles like ETFs, SMAs and retail participation - is helping lower barriers to entry across bond markets. The combination of these factors is boosting liquidity, transparency and trading speed, supporting greater sophistication and market access.

Climate risks are coming into sharper focus in financial markets. Over the past few years, the increasing frequency of extreme weather events has raised costs for communities and companies around the world. The insurance industry has struggled to adjust, raising premiums and pulling out of certain high-risk areas. These costs translate into material considerations for global and U.S. debt and real estate markets, including home value declines and affordability challenges. Alongside this, many corporations are facing regulatory mandates and investor pressure to reduce carbon emissions. ICE Climate develops tools to inform market participants about global physical and transition risks across fixed income. Risk estimates are linked to individual securities, enabling clients to gain a comprehensive view of their exposure. In the coming year, new offerings will allow clients to link extreme weather events to assets on the ground (including real estate, municipal bond obligors, and corporate locations) to help assess event exposure in near real time. The broadening of data coverage to include private companies and global real estate will offer new insights into risks that may be underappreciated. Finally, ICE Climate is monitoring the market for a climate pricing signal—creating yield curves based on high-risk municipal bond securities and comparing them to benchmarks over time. With the development of these curves, ICE now has the unique ability to watch and report on the impacts of extreme weather events and climate-related risks on pricing in near real-time. This capability will allow us to address the critical and as yet unanswered questions of when and how climate risks become more fully priced into the market.

U.S. real estate presents a challenge to financial market participants: the fragmented nature of data historically made it difficult to accurately model the marketplace. A lack of data granularity, reporting lags and privacy concerns are additional hurdles. Addressing these issues could be transformative for market transparency, liquidity and risk management. ICE has invested heavily in mortgage services to address these issues, and by combining our data, technology and analytical expertise, we expect to significantly improve pricing accuracy and prepayment modelling for the +$12 trillion mortgage-backed securities market. Central to this ambition is a deep and broad footprint in mortgage data to support representative modelling. ICE’s Encompass loan origination system supports underwriting for over half of all U.S. residential loans, while our McDash loan-level data is driven by contributions from roughly two-thirds of all mortgage servicing firms. Lastly, ICE’s bond evaluation business has been helping clients value their fixed income holdings for over 40 years, shedding light on prices for mortgage-backed securities and other securitized products. Harnessing these signals enables ICE to offer insight into a breadth of metrics covering all stages of the mortgage lifecycle. Over time, access to high quality mortgage data should bolster confidence in investment decision making, increasing sector participation, boosting liquidity, and ultimately leading to lower costs for borrowers.

2025 will be a milestone year for the world’s most liquid fixed income market, with the imposition of mandatory central clearing for cash U.S. Treasuries taking effect on December 31. Clearing will be transformative for U.S. government securities, enabling investors to realize significant balance sheet efficiencies, reduce risk by exchanging collateral, and widening the universe of counterparties with whom investors can trade. The clearing mandate will be extended to Treasury repo and reverse repo by June 2026. ICE plans to be ready for both deadlines, offering clients a Treasury clearing service built on our tried-and-tested OTC derivatives clearing model . Work to prepare the market for the transition will take place as the Federal Reserve brings its interest rate easing cycle to a conclusion, seeking a soft landing for the U.S. economy while simultaneously keeping a lid on inflation. Amid this delicate balancing act, rising term premium in the Treasury market is making it clear that bond investors are going to demand to be appropriately compensated for buying U.S. paper further out the yield curve in 2025. Sticky inflation and concerns that the new administration will rely on continued deficit spending to finance its policy objectives are compelling investors to insist on more attractive yields to invest in long-dated bonds. These dynamics all bear watching over the next 12 months.

While the use of artificial intelligence (AI) and machine learning is still nascent in bond markets, it holds huge potential - for risk management, efficiency, and uncovering new sources of alpha. Initially, the most exciting application of AI may be its ability to find patterns in unstructured data. Bond markets generate huge volumes of unstructured data - such as emails or chat messages - that exist outside traditional databases. Historically, the variability of this data has made it hard to process with rules-based systems. AI can be trained to find patterns in unstructured data, uncovering a new trove of information for markets.

ICE’s expertise in data analysis and application has allowed us to apply unstructured data across our businesses to create innovative products. These include independent evaluated pricing, reference data, and a range of analytics that add supplementary information around the price of a security - all of which can help to train client AI models. More broadly, our goal with AI is to automate tools which provide analytical insights for clients and boost efficiencies. In fixed income, we’re focused on three areas: improving data precision, timeliness, and scaling efficiencies - for example, using AI to extract data on new issue bonds and mortgage documents - and deliver this information straight to clients. Leading the entire initiative is ICE’s AI Center of Excellence, which was established to implement AI innovations with appropriate governance and safeguards. It provides a platform for cost-effective AI experimentation and facilitates the deployment of AI-based features at scale, encouraging collaboration across the company.