2014 Greenwich Share and Quality Leaders Announced in U.S. Fixed Income
Fixed-income dealers who thought market conditions couldn’t get any worse this year have been proven wrong. In this environment, dealers retaining scale and smaller, potentially more nimble competitors managed the best in terms of market share or gaining new customers.

Four global banks – Goldman Sachs, Deutsche Bank, Citi, and J.P. Morgan – are essentially deadlocked atop the U.S. fixed-income market for overall market share, which is driven by volumes in government bonds, interest-rate derivatives and MBS pass-throughs (together accounting for more than 80% of total volume covered). These four banks capture shares between 11.4% and 12.1% in overall volume over the past 12 months, leaving them in a statistical tie for the leading spot, while Barclays rounds out the top 5 with a market share of 10.3%. These firms are the 2014 Greenwich Share Leaders in Overall U.S. Fixed-Income Trading.

J.P. Morgan and Bank of America Merrill Lynch are the 2014 Greenwich Share Leaders in U.S. Fixed-Income Credit with market shares of 14.3% and 13.7%, respectively, followed by Citi at 12.5%. Credit Suisse (13.1% ) and Bank of America Merrill Lynch (12.2%) are the 2014 Greenwich Share Leaders in U.S. Fixed-Income Securitized, and Citi is the 2014 Greenwich Share Leader in U.S. Municipal Bonds and Derivatives.

Two main factors contributed to the tough year: low rates and new regulations. Low rates and a lack of volatility kept fixed-income trading volumes distressingly low and left a number of dealers and investors on the wrong side of the market as rates declined.

New, tougher capital reserves requirements made the balance sheet the biggest issue and dealers are more constrained than ever as to how much inventory they can carry and how much liquidity they can provide. New regulations have also sharply increased compliance costs as banks were forced to hire hundreds of compliance officers and upgrade IT systems. “The bottom line for fixed-income dealers: revenues are down and costs are up,” says Greenwich Associates consultant Frank Feenstra.

Amid these conditions, the banks faring best are those with the largest product platforms, along with smaller, niche players, while mid-sized dealers with larger infrastructures but lower revenues are getting squeezed. Five of the six biggest U.S. fixed-income dealers saw an increase in market share over the last year and the collective market share held by the top 5 sell-side firms increased to 57% from 53% a year ago. “We’re seeing a greater concentration of share among the top banks as buy-side customers try to stay as relevant as possible with the big banks,” says Greenwich Associates consultant James Borger. “But we are also seeing investors seek out liquidity by adding more dealers to their list of counterparties, especially as a few banks have reduced their commitment to the space.”

Greenwich Quality Leaders
The 2014 Greenwich Quality Leaders in Overall U.S. Fixed-Income Sales are Bank of America Merrill Lynch, Citi and J.P. Morgan. The 2014 Greenwich Quality Leader in Overall U.S. Fixed-Income Research is J.P. Morgan, and the 2014 Greenwich Quality Leaders in Overall U.S. Fixed-Income Trading are Bank of America Merrill Lynch and Citi.