Liquidity Is Back. Finding It Is the New Challenge for Fixed Income Desks
Liquidity has returned to most of Europe’s fixed income markets. The challenge now is knowing where it sits, and trusting the data that points to it.
That is a central theme of The FILS Europe Playbook, for which Fixed Income Leaders Insights surveyed 100 senior fixed income professionals from asset managers, hedge funds and private banks across Europe.
Markets are easier to trade
58% of leaders say fixed income liquidity has improved over the past two years. This is a more constructive picture than last year, when regulatory constraints, technology limitations and market data costs were front of mind. Electronification, the growth of portfolio trading and the arrival of new liquidity providers have all contributed.
The improvement is uneven, however. For roughly one in seven desks, conditions have moved the other way.
“Having done fixed income across the sell side and the buy side for 30-odd years, recent years have seen one of the best, if not the best, liquidity environments we’ve been in.”
Lars Salmon, Head of Fixed Income Trading, Fidelity
The liquidity paradox
More liquidity has not made execution easier. 55% say their greatest challenge is identifying the best source of liquidity, while 53% point to data quality and consistency. Selecting the right execution protocol (16%) and dealer balance sheet constraints (22%) rank much lower.
The issue is less about how to trade and more about knowing where and when. New venues, protocols and providers add depth to the market, but they also add options that have to be found, compared and trusted. The report describes this as the price of progress rather than a warning sign.
What leaders want
The fixes leaders want mirror the problem:
- Better liquidity discovery tools (59%)
- Greater automation of execution workflows (46%)
- Improved pre-trade analytics (44%)
- Standardised fixed income data models (43%)
Only a quarter want AI-assisted execution decision support, which suggests leaders want to see the market clearly before delegating decisions to technology.
The same logic explains a gap on consolidated data. 40% want consolidated market data, yet only 8% expect the consolidated tape to be the most important regulatory change. As the report notes, a tape only records trades that have already happened, so to have a meaningful impact it has to be combined with pre-trade and in-house data in a single view.
“Liquidity may be the objective, but data is increasingly the enabler.”
Swati Bhatia, Head of Fixed Income, SIX
Read the full report
The FILS Europe Playbook explores liquidity and market structure in more depth, alongside data and digital market infrastructure and portfolio strategy.