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New Fixed Income Trading Platforms Face Liquidity Crunch

A recent article in Bloomberg highlighted the recent boom in new electronic bond trading platforms.  According to the article, there are currently 99 such platforms worldwide.  The new trading platforms have entered the market at a time when banks have retreated from making markets in fixed income securities in the wake of post-crisis regulation.  A SIFMA survey cited in the article found that 13 of the 19 bond trading platforms that are based in the U.S. have entered the market in the last two years. 

Despite the increase in the number of potential trading venues, liquidity remains a challenge for bond traders.  According to a recent Greenwich Associates survey, 75 percent of institutional corporate bond traders believe that liquidity has declined, and 55 percent believe that the market will experience a further decline in liquidity.  However, some market participants believe that current bond market liquidity represents a return to historic levels – similar to 30 to 40 years ago when bonds were “buy and hold” investments.