Credit Where Credit’s Due
While overall bond trading inventories are down, there is considerable variance across the market. Using four of our core US banks as an example, GS and JPM have significantly increased their balance sheet holdings in the past year, in contrast to Citi and MS.
CDS holdings have followed a different trajectory, growing in 9m11/9m10, but then declining/levelling off in the last year.
Overall, the market has become more concentrated in the hands of a smaller number of dealers, banks with smaller holdings have turned to e-trading.
As a result the overall fall in bond trading holdings is inversely correlated with the rise of electronic trading.
We forecast that multi-dealer platforms will come to dominate trading of the most liquid names while single dealer and voice will be more prominent for less liquid markets.
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