While investors traditionally negotiated prices for U.S.
Treasuries by telephone, they’re increasingly turning to computer-based
marketplaces for a range of price quotes from different dealers. A record 48
percent of trades in U.S. government debt have occurred on electronic platforms
this year, up from 31 percent in 2012, according to a Greenwich Associates
study released yesterday.
Bond managers are looking for more efficient ways to
determine values in a $12 trillion market as banks use less of their own money
to opportunistically buy and sell, giving them less of an edge when they pitch
their brokerage services. The trend is squeezing profits on Wall Street, where
firms are already facing lower trading revenues in a sixth year of record
Federal Reserve stimulus that’s suppressing yields and volatility.
The biggest banks reduced their rates-trading balance sheets
by almost one-third, or about $200 billion, since the 2010 peak, Credit
Suisse Group AG analysts Ira Jersey and William Marshall wrote
in a May report.
While electronic trading systems may allow for faster price
discovery, the trend may also discourage some investors from selling bigger
chunks of less-traded securities out of concern they may move prices against
While the U.S. Treasury market has more than doubled in size
since the end of 2007, trading has fallen 4 percent in the period through the
end of last year. Average daily trading has fallen to $498.1 billion this year
through August, compared with $551.4 billion a day in the same period last
year, according to data compiled by the Securities Industry and Financial
There’s less buying and selling in part because a large
portion of the debt is owned by the Fed, which has expanded its balance
sheet to $4.5 trillion from less than $1 trillion in September 2008
through three bond-buying programs.
All of that central bank stimulus has also made it harder
for investors to find yield, increasing pressure on them to make sure they get
the best deals. So bond buyers are turning to a greater number of dealers for
their bets on Treasuries, relying on more than eight firms this year from about
six dealers in 2009, Greenwich Associates data show.
As investors prepare for rising interest rates and more
volatility in the Treasury market, they’re trying to become more nimble. So
far, that’s meaningless business for human traders, and more for the computers.
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