This article was penned by CAPIS

Trading in normal circumstances is already fraught with myriad complexities and idiosyncrasies but when one adds COVID-19 and all of its unique effects, it more closely resembles rocket science rather than simply matching a buyer and seller together. Just ask David Lee, CAPIS’ Director of Fixed-Income David Lee, who day in and day out meets this challenge for his clients. 

In this Q&A conducted by CAPIS’ FVP of Institutional Sales Coleen Donohue following a panel discussion at a recent bank trust conference, Lee shares his insights on bond trading including how the markets have changed since going remote, client trading styles, and where liquidity can be found.

Coleen: What can be said about trading methodologies that you see in action day in and day out? Is there a common “type” of trade you find yourself involved in?  

David: Our most frequent trades are in investment-grade corporates in the secondary market on both the bid and offer. 

Coleen: Headlines frequently point to the ongoing rise of electronic bond trading platforms — is CAPIS seeing volumes shift one way or the other? 

David:  I have seen many of the reports that talk about the rise of electronic platforms. I am not sure it is prevalent as many reporting on the subject would lead you to believe. I tracked the 10 most actively traded investment-grade corporates each day (over 140 CUSIPs) in November and less than 20 percent of the $200k and up trades took place on an ATS. Our clients have an electronic platform to access liquidity if that fits their needs best, but we also use the human touch before those trades are executed to make sure there is not a better level available.

If there is a better price available, our desk will intercept the order — that’s a key differentiator between our electronic offering and that of our competitors. Many of them give their clients electronic trading capabilities, but then do not interact with the platform themselves.

Coleen: How has the fact that CAPIS doesn’t take positions affected your clients in the course of the last year? Specifically, in regards to the liquidity crunch that hit alongside COVID early in the year? Any lessons from that? 

David: The crunch happened when many of the fixed income market participants with risk committers began avoiding certain issuers and/or sectors — that is when our model provides liquidity given we aren’t tied to a risk position. The fact that we don’t take positions allowed us to outperform for our clients during that time. 

Coleen: Given the fixed income market is OTC/opaque/lacks a consolidated tape, is best execution a matter of “reasonable diligence,” your past experiences, and/or something else? 

David: The CAPIS approach is the same for every opportunity our clients present to us. We utilize a combination of technology, effort, experience, and established relationships for every client and situation. The fact that we are not motivated to push a position that we own provides our clients with the assurance that we will exhaust every means available to us to get the best execution available.

For questions or to learn more about CAPIS and fixed-income trading, please reach out to Coleen Donohue (214) 978-4784 or [email protected] and follow us on Twitter (@capisinc) and LinkedIn for more updates and insight from our team.