By Coleen Donohue – Institutional Sales, FVP, CAPIS
Trading fixed income securities can be a complex process requiring a blend of expertise, technology, liquidity access, and strategic execution. It often involves sourcing liquidity from multiple counterparties and negotiating price improvement with a nonconflicted, compliance-first posture — all while minimizing market impact.
Unlike equities, which have been largely electronified for years, the fixed income market is a hybrid landscape. Some participants leverage modern electronic platforms, while others rely on more traditional, high-touch approaches. Regardless, all institutional investors and trust departments face the same fundamental question: Which is better?
The development of electronic trading platforms and tools has transformed fixed income in recent years, enabling clients to search for securities by sector, maturity, yield, call features, and more. Clients can also request quotes from multiple counterparties within seconds. These efficiencies have become valuable components of modern execution processes.
However, while these platforms offer ease of use and broad market access, they operate with little to no human intervention, and they seldom represent the full extent of available liquidity. Relying solely on electronic systems means valuable opportunities can be missed.
Full-Service Trading Desks: A Competitive Edge
Fixed income markets still trade primarily over the counter, meaning verifications remain crucial to getting the best possible pricing. By tapping into its relationships, a full-service high-touch trading desk can provide access to liquidity that may not be visible on electronic platforms. Its traders can suggest alternative securities, intervene when better opportunities arise, and even negotiate price improvements on behalf of investors, providing an additional layer of visibility and price transparency.
This is especially valuable for larger transactions, which often require a broad network of counterparties to achieve best execution. In one recent case, our team worked with a manager seeking bids on 59 corporate bonds. We ended up working with over 70 regional and primary dealers – no single firm bid on all bonds, and seven firms submitted winning bids. This breadth and diversity reveal the inherently limited nature of electronic platforms. Expanding reach is crucial, and experienced trading desks excel at navigating the complexities.
Equally important is a high-touch trading desk that avoids conflicts of interest, proprietary trading, and internal risk positions. Securing optimal results for clients must be the sole focus.
Personalization + Efficiency: The Key to Optimal Client Service
All investors, regardless of portfolio size, benefit from this level of attention and transparency. While primary dealers often focus on large portfolios, the right high-touch trading desk should serve a diverse range of accounts — from smaller asset managers to large institutional investors — promoting fair and optimal execution for every trade.
The emergence of modern platforms and tools for fixed income have certainly provided value but investors benefit most when they can leverage both electronic efficiencies and personalized insight to uncover hidden liquidity. Managers and trust departments should seek a trading partner that can bridge the gap between modern electronic execution and tried-and-true methodologies, with deep expertise, extensive relationships, and a commitment to transparency and quality executions.
Interested in learning more? Please feel free to contact me at [email protected] to set up a call.