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Bond Trading Frenzy Risks Giving Market Makers a False Sense of Security
(Bloomberg) — On the surface, the corporate bond market has never looked more stable and liquid. In the US, the market recorded its busiest month ever for trading volume in September.
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But history suggests that the ability to trade smoothly is only there until you need it, and the International Monetary Fund warned this week that tight spreads are raising the risk of an abrupt repricing of credit.
Typically, the volume of trades rises when investors crave risk, according to Blair Shwedo, head of fixed income sales and trading at U.S. Bank. Securities that are relatively easy to sell can also help money managers limit losses and return cash to investors redeeming when markets sell off.
“My concern is the kind of self-fulfilling prophecy of everybody thinking liquidity is good and getting better,” said Shwedo in an interview Wednesday. “Does that lead us to a point where, because everybody’s under the assumption that liquidity is really good, the music stops and we see a drastic deterioration?”
At the moment, credit spreads show bond markets priced for perfection, buoyed by a robust outlook for the US economy and the likelihood of more policy easing from the Federal Reserve. That makes them more vulnerable to swift repricing if volatility spikes — as it could in the aftermath of November’s presidential election.
Shwedo does not see any immediate signs of a deterioration in liquidity, barring an exogenous shock. The rise of e-trading, portfolio trades and exchange-traded credit funds gives dealers greater ability to provide pricing than they had in 2020 when the pandemic roiled markets, he said.
More non-banks also make markets, with platforms like MarketAxess Holdings Inc. and Tradeweb Markets Inc. becoming popular as credit is increasingly traded electronically. More users enhances liquidity, which further boosts orders.
That helped September become the biggest month ever for US investment-grade trading, with an average daily volume exceeding $43 billion, according to Bloomberg Intelligence. Electronic activity accounted for 50% of high-grade bond trading in September, based on Coalition Greenwich data.
Portfolio trading, where investors buy or sell a block of bonds in one or two transactions, are now a key driver of the ability to trade smoothly, according to Barclays Plc. It’s boomed in the last few years, rising to 25% of dealer-to-client volumes in September from virtually 0% in 2018, analysts led by Dominique Toublan wrote in a note last week.
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UK based foreign exchange brand Travelex has announced that the company has undertaken a major expansion in the UAE, with the launch of 13 new stores across Abu Dhabi and Dubai airports.
At Zayed International Airport, Travelex is doubling its store footprint from seven to 14 stores, including six new on-the-move kiosk (OTM) locations at arrivals baggage, airside departures and pre-immigration, and one new traditional landside store. The new landside store will offer both a cash management service that will enable the airport’s businesses to process cash, as well as traditional consumer cash services, including access to 62 currencies.
Travelex initially entered Zayed International Airport in late 2023 with seven stores and eight ATMs. The new stores reflect the growing passenger demand and customer requirements of the UAE’s newest airport. As a dominant force in the capital’s aviation sector, Zayed International Airport rapidly affirmed itself as a key hub for air travel, solidifying its position as a vital player in the global travel landscape.
At Dubai International (DXB), Travelex is in the process of launching six new stores across all three terminals, including new traditional stores and stores upgraded from OTMS. Two ATMS dispensing AED were also installed at Terminal 3 Arrivals earlier this year. DXB has also seen a considerable post-pandemic growth in pax numbers, reinforcing its status as a leading hub for international travel.
The 13 new stores across Abu Dhabi and Dubai means Travelex will be operating 60 locations across the country. The latest IATA figures show that Middle Eastern airlines saw a 9.6% year-on-year increase in demand for June 2024, while capacity increased 9.4% year-on-year.
Batu Dölay, Managing Director, Travelex Middle East and Türkiye said:
“We’re delighted to be expanding our presence at two of the most exciting and dynamic airports in the world. This investment reflects the growing global reach and passenger numbers of our UAE airport partners, and our commitment to providing even greater access to international travel money than ever before.”
About Travelex
Founded in 1976 Travelex has grown to become one of the market leading specialist providers of foreign exchange products, solutions, and services, operating across the entire value chain of the foreign exchange industry in more than 20 countries. We have developed a growing network of ATMs and stores in some of the world’s top international airports, major transport hubs, premium shopping malls and city centres.
Travelex has built a growing online and mobile foreign exchange platform, and we also process and deliver foreign currency orders for major banks, travel agencies, supermarkets and hotels worldwide. In addition, we source and distribute sizeable quantities of foreign currency banknotes for customers on a wholesale basis – including central banks and international financial institutions. We also offer a range of remittance and international money transfer products around the world.
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