[ M A R K E T
“The bond market has seen a lot of evolution in terms
of changes in liquidity and a shift towards electronic
trading,” says Brett Pybus, head of iShares EMEA
fixed income strategy at BlackRock. “We have seen
an increased use of technology in fixed income, and
the introduction of equity-like trading plays to the
strengths of bond ETFs. This is because they provide
a very efficient way for buyers and sellers to trade
without having to go through traditional dealers. They
also provide transparency in a typically opaque bond
market to clients by offering a window into where
different bond exposures are trading.”
The world’s largest asset manager is at the forefront
of the ETF boom, with its iShares business raking
in $54.8 billion in Q4 last year alone. BlackRock has
made significant outlays in technology expenditures in
recent years as it looks to ensure order and deal flow
facilitates growth in volumes, as well as leaning on the
array of capabilities provided by its Aladdin platform.
According to Pybus, some of the firm’s most sophis-
ticated technology is on the fixed income desk trading
ETFs and managing those portfolios, with dedicated
spending aimed at ensuring BlackRock’s clients are
able to benefit from the product’s characteristics as
efficiently as possible.
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Index trading
Investment advisors are now
joining the ETF party and gaining
more understanding of the process
as an alternative means of finding
liquidity for individual bond
holdings.
Mullen says that via this new and
creative way of looking at creation/
redemption portfolio mangers can
exchange a basket of bonds for new
shares of an ETF and then hold the
more liquid shares while main-
taining rate and credit exposure,
or sell the shares in the secondary
market and go directly to cash. He
adds that some managers have also
begun to fund portfolios with indi-
vidual bonds exchanged out of an
ETF via the redemption of shares.
This process again reflects the ben-
efits of ETF investing as it is often
faster and more cost efficient than
investing in individual bonds.
The adoption of index trading in
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