Tuesday, November 1, 2016 Stamford, CT USA — The top 10 dealers of U.S. Treasuries captured a collective 86% of client trading volumes last year. That dominant position is in no immediate danger. However, there are signs that new competitors are expanding their toehold in a market estimated to produce $750 million in annual revenues.
Nearly one-in-five of the almost 1,000 institutional Treasury investors participating in the Greenwich Associates 2016 North American Fixed-Income Study expect to be trading Treasuries with non-bank liquidity providers within the next year.
A new report from Greenwich Associates, New Landscape in U.S. Treasury Trading Benefits the Buy Side, examines several trends working to expand opportunities for non-bank liquidity providers and other competitors beyond the market’s major primary dealers:
- U.S. investors trading U.S. Treasuries currently trade nearly half of their notional volume electronically, up nearly 17% from 2015, with over 80% now accessing e-trading platforms for at least some of their trades.
- 70% of investors told Greenwich Associates they trade government bonds with dealers that do not provide repo/financing, a major offering of bulge-bracket banks to facilitate client trading, given their unmatched access to balance sheet (albeit less than in the past).
- Two-thirds of investors say they’d continue to trade with their dealer counterparties even if they were no longer primary dealers.
“The world’s biggest government bond dealers continue to handle the vast majority of Treasury trading volume, including the largest and most important trades in the market,” says Kevin McPartland, Head of Research for Market Structure and Technology at Greenwich Associates, and author of the report. “However, our research shows that investors are slowly starting to decouple their execution needs from the broader array of services that large money center banks continue to provide.”